First, I strongly suggest consulting with a retirement
planning expert. There are non-profits that offer such services as well as
professional firms. No matter how hard you try, you will never know enough to make
these decisions on your own. You need someone who specializes in retirement
planning.
If your retirement planner sees that you have a lot of debt,
he/she may recommend bankruptcy. Click here for an article on “What is Bankruptcy.”
Qualifying for Chapter
7
Our first consideration will be the question of whether you
qualify for Chapter 7 or not. Most people would much rather go into Chapter 7
than any other chapter. If you don’t qualify for Chapter 7, then we will look
at a Chapter 13, which is a longer and more expensive process.

To qualify for Chapter 7 bankruptcy, your last six-months of
income must be below a certain threshold, unless over half your debt is “non-consumer
debt” (in which case your income is irrelevant). The definition of non-consumer
debt is extremely broad and even includes student loans. Your last six-months
of income will depend on many factors as there is a long and complicated formula
for determining this number and the threshold that applies to you. If you are
over 65, you get a boost in qualifying. As part of my free consultation, I will
give you a free legal opinion as to whether you qualify for Chapter 7. I
promise not to pressure you to go forward after that.
So let’s say that you don’t qualify for Chapter 7. We still
have plenty of options. First, since you are beginning retirement, we assume
your income is about the drastically decrease. So that gives us the possibility
of starting a Chapter 13 and later converting to a Chapter 7 when you qualify.
Also, we are allowed to simply wait a few months until your last 6-months of
income is below the threshold. These options will also give us more time to
engage in pre-filing planning. Finally, there are several factors that we are
allowed to take into account to bring your income number down and increase the
threshold number—including whether you are over 65 or have financial dependents
over the age of 65.
Protecting Your
Assets
Our second consideration will be whether your assets will be
protected in bankruptcy. If you read my essay on “What is Bankruptcy,” you saw
that the court will appoint a trustee to manage your assets, with the goal of
selling them to pay off creditors. However, we will not file bankruptcy for you
unless we are sure that your assets are “exempt” or “excluded” from this
selling-off process. The exemption process is one of the primary duties of a
bankruptcy attorney.
Most retirement accounts, including most IRA’s, 401K’s, pensions,
deferred compensation accounts, and other retirement assets are going to be
protected (i.e., exempt from selling-off) up to a very high amount. Social
Security income is exempt. For very wealthy retirees, you may run into a
problem here, but most people will not.
Your House:
One big issue we see is in protecting a retiree’s house.
Homes and real estate are not treated differently for retirees, relative to
other classes of bankruptcy filers. However, as a practical matter, many
retirees actually own their homes outright, with no liens or mortgages.
Fear not. The exemption for the value of your home is pretty
high. If your home’s value is far above the exemption amount, then we still
have options. Often, this would be a reason we would look at a Chapter 13, but
we bankruptcy attorneys have to deal with this problem on a case-by-case basis.
How Will Filing
Affect My Chances of Getting Accepted Into a Retirement Home?
If it is a facility that accepts Medicaid, they cannot discriminate
on this basis. If they don’t accept Medicaid, they may discriminate on that
basis. However, if you have a lot of debt, they probably were not going to take
you anyways.
So here is what you should know. They will look at your
debt-to-income ratio before anything else. The best thing to do in this case is
file sooner rather than later. After you rid yourself of oppressive debt and
get some time between your application to a retirement home and your bankruptcy
filing, your chances will begin to go up significantly.
In Conclusion
If you are considering retirement and you have a lot of
debt, you should definitely consider bankruptcy. You should first consult with
a skilled retirement planner. Then, if he/she recommends it, come to me and we
will see what your options are in bankruptcy.
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