Financial problems can hit you any time in life, even in retirement. While the goal is to enjoy retirement stress-free, it isn’t always realistic. Without a steady income to cover remaining debts, you may need legal help to solve your issue.
Filing for bankruptcy can be the solution you need to start enjoying your retirement. Learn if bankruptcy is right for you and how it might influence your retirement.
Chapter 7 and 13 Bankruptcy
The two common types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 involves liquidating certain assets you own to repay your creditors.
Chapter 13, on the other hand, allows you to keep all your assets and establish a payment plan to getting out of debt. You follow the payment plan for a pre-determined amount of time, and then the rest of your debt is forgiven. However, both kinds of bankruptcy filing have different standards and qualifying processes.
Who Qualifies for Bankruptcy During Retirement?
To qualify for Chapter 7 bankruptcy, you need to take a means test. This test assesses your assets and debts to see if you’re capable of repaying your debts without filing. It looks at your monthly expenses compared to your income to see if you can readjust and pay off your debt.
However, one benefit of this process for retired individuals is that it doesn’t include Social Security benefits or Veteran benefits in the income. This makes the qualification process much easier for retired individuals.
It does look at your other sources of income, including a pension or the money you’re pulling from a retirement fund. If this is higher than the threshold for the means test, you’ll need to consider filing for Chapter 13 instead.
It’s also important to consider the debts that can be discharged. Commonly, bankruptcy can discharge common types of consumer debt, including credit cards, medical bills, personal loans and more.
Are Retirement Accounts Exempt from Bankruptcy?
A great benefit of filing for bankruptcy in retirement is that your retirement accounts, including 401(k), 403(b) or other accounts, won’t be touched. They are fully exempt in all states, meaning you don’t need to risk losing your income. Roth IRAs, on the other hand, are exempt up to about $1.2M.
If you receive other types of income, such as alimony, life insurance payments, disability, veterans benefits, or public assistance, you can claim an exemption on these funds. You’ll need to check with your state and local laws to see what exemptions apply.
Is Bankruptcy Right for You?
If you’re struggling with debt during retirement, bankruptcy could be the right option for you. But if you’re going to file, you need to know the ins and outs of both Chapter 7 and Chapter 13, including which best fits your needs.
If you choose to file for bankruptcy, do so with the help of a reliable and credible bankruptcy attorney. At the Malaise Law Firm, we’ll assess your situation and help you learn more on how bankruptcy can get your life back on track. Contact us today for a consultation.