Your decision to retire comes after you have spent a large amount of your life working and have been able to save enough money to cover your living expenses for the remainder of your life. Unfortunately, this is not always the case; retirees often live on a fixed income, so while their monthly financial allotment stays the same, the cost of food, gas, and other expenses continues to rise every year.
Additionally, some people find themselves with more medical issues as they age, which means they receive more medical bills as well. Seniors sometimes find themselves using their credit cards more to cover their basic living expenses, and before they know it, they have created a mountain of debt that they are unable to pay. For retirees facing dire straits, bankruptcy might be a viable option.
Retaining your Retirement Accounts
Some seniors might feel that bankruptcy is not an ideal choice for them because it carries the stigma of financial ruin and they cannot afford to lose more of their money. But bankruptcy does not wipe out their funds and is actually a favorable option for many who face extensive debt. In fact, most retirement accounts are exempt from bankruptcy, so the funds that are in your 401(k), 403(b), and other qualified plans are safe from creditors.
If you have an IRA, SEP IRA, or Simple IRA, there is a limit of $1,242,475 that is exempt from bankruptcy; it’s important to note that this figure is for all IRA plans, so if you have two IRAs with $1,242,475 in each of them, for example, you will only be able to exempt one IRA, and the other one can be made available to creditors.
If you are withdrawing from your retirement accounts, it’s possible that the withdrawn funds can be susceptible to creditors. Anything you withdraw that is above what you (and your spouse, if applicable) need to live on could be taken in bankruptcy. It depends upon how much money you need to maintain your regular living expenses.
Retaining your Social Security Benefits
Social Security is a federal benefit and as such, is protected by law and exempt from bankruptcy. However, as is the case with your retirement withdraws, if you are drawing your Social Security, it could be subject to your creditors if it’s in your bank account as income. A recent federal regulation states that banks cannot freeze or garnish bank accounts containing Social Security funds, which means you will need to make sure these funds are identified as Social Security income. A good way to keep these funds safe is to open a separate bank account and direct only your Social Security funds into it.
Keeping Your Home and Other Assets
It may be possible to keep your home and other assets, such as your car and other personal possessions, after you file for bankruptcy. States have a homestead exemption that protects the homes of seniors from creditors, as long as the value of the exemption does not exceed the value of the home. In Ohio, your income threshold is currently $31,500. Retaining other assets can depend upon many factors, so it is a good idea to speak to a bankruptcy attorney about the process.
What’s Right For You?
Being in debt is a scary situation for anyone, but for those living on a fixed retirement account, it is even more of a nightmare. You need to hold onto to every dollar you’ve spent so much time saving so you can live comfortably and enjoy your retirement. You may have insurmountable credit card debts, medical bills, and other monies owed that you just can’t pay. We’re here to go over all your options and draw up a plan that lets you live the comfortable life a retiree deserves.
Call a Cleveland Bankruptcy Attorneys today to discuss your situation at (216) 586-6600, or email us at advice@clevelandbankruptcyattorney.com.