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What is a gray bankruptcy?
If you are age 65 or older and facing substantial credit card debt issues, you are not alone. The National Consumer Law Center reports that, nationwide, people in this age demographic have approximately four times as much credit card debt as people aged 25 and younger. In fact, people between the ages of 65 and 69 saw their credit card debt increase by an average of 217% between 1992 and 2001.
Since then, you likely have had to rely on your credit cards more and more to make ends meet. Several factors, including the following, probably have contributed to this unfortunate situation:
- Your health care costs have skyrocketed.
- Your Medicare coverage has gaps.
- Your Social Security benefits cannot keep pace with your ever-increasing costs.
- You have depleted what little savings you managed to accumulate over the years.
All of this makes you a prime candidate for the phenomenon known as gray bankruptcy, the term applied to bankruptcies filed by those over the age of 65.
Should I work with a credit counselor?
If you currently have more debt than your income can support, you may feel tempted by many of the expensive debt settlement ads you come across. These professionals sometimes do fulfill their promises to reduce or eliminate your debt, but consider credit counselors before making a final decision.
When completing the bankruptcy process, you may need to complete credit counseling courses before moving forward. Non-profit organizations often provide these courses as well as services to assist with financial literacy. Some people who complete the courses get finances back on track and may not need to go through with the bankruptcy process.
What are the benefits of hiring credit counselors?
When you need to work on your finances, no price sounds better than free. Credit counselors rarely charge fees for advice. The services they do charge for may still cost a lot less than hiring for-profit professionals. These include the following:
- Negotiation of lower payments and interest rates
3 basics of filing for chapter seven bankruptcy in Maryland
If you are a recently divorced single mother in Maryland struggling to handle bills and keep up with debt payments in spite of working a a full time job with decent pay, filing for bankruptcy may be an option to consider. There are three main chapters of the federal Bankruptcy Code, 7, 11 and 13. There is also a Chapter 12, which is essentially Chapter 13, but solely for family fishermen and family farmers.
Chapter 7 and Chapter 13 are the two options for consumer bankruptcy. Chapter 7 is simpler, quicker and generally the one more suited for aiding single parents with low or moderate income.
What is Chapter 7 bankruptcy?
The government assigns you a trustee. He or she takes control of your nonexempt property, liquidates it and uses the resulting proceeds to pay off your creditors. This method may clear your debt within months.
What is the bankruptcy means test?
If you make more than the average income for Maryland households the same size as your own, then you have to complete the Maryland means test calculation. Its results determine whether or not you are able to partially cover your debts through a Chapter 13 bankruptcy instead. If your household income is below the median, your debts are not mostly composed of consumer debt or you are a veteran and acquired them while on active duty or during a homeland defense activity, you do not have to fulfill this requirement.
Understanding the advantages of Chapter 7
The majority of bankruptcies filed by individuals in the United States are Chapter 7 bankruptcies. A Chapter 7 bankruptcy is a liquidation bankruptcy. This is where the debtor will give up valuable property with the goal of paying off creditors.
In order to file for a Chapter 7 bankruptcy, you must meet specific income limitations. Assuming that you meet the requirements, there are many advantages to a Chapter 7 bankruptcy. According to FindLaw, with a Chapter 7 bankruptcy you get a complete fresh start, you can keep future income and there is no repayment plan to deal with.
What is the "fresh start?"
This is the entire goal of a Chapter 7 bankruptcy. With a successful Chapter 7 filing, you will have an entirely new start because the courts will eliminate your personal liability for certain kinds of debt.
Keep in mind that bankruptcies cannot discharge all debts. If you have liens against your property, child support payments or debts you incurred through fraudulent actions, you must still pay these back. It is also usually not possible to discharge student debt with Chapter 7 bankruptcy.
What happens to your retirement in bankruptcy?
If you are close to retirement but find yourself having to file for bankruptcy, a top concern will naturally be how this will impact your retirement accounts. When filing Chapter 7, the court will look to seize any non-exempt assets so that it can liquidate them and use the money to pay back your creditors.
Luckily, you have some protection for your retirement accounts, depending on what type of account they are and how much money you have in them.
Your 401k
According to Bankrate, your 401k likely has the most protection against seizure in a bankruptcy. As long as you keep the money in your 401k account, the court will not touch it. However, the minute you access it, it becomes an asset that the court may seize.
So, you need to leave your 401k alone during your bankruptcy and check with your attorney about when you can access it without penalty from the bankruptcy court.
Other accounts
You may be able to exempt other retirement accounts you have using the state or federal exemptions. However, these exemptions are often quite low in value, so you may only be able to save a portion of any account. Checking, savings and other bank accounts are especially vulnerable in a bankruptcy. If your retirement savings is mainly in a savings account, you can expect to lose most if not all of it to the liquidation process.
What are your obligations as a debtor?
Maryland residents like you may find yourself in a position where debt overwhelms you. When pushed into a corner like this, your options often feel limited. You may turn toward bankruptcy feeling like it is a last resort, but it is not.
Bankruptcy is a helpful tool that can get people like you out of hot water. But if you opt for Chapter 13, you need to know how it will impact you and what your obligations are.
Starting off on the right foot
Forbes discusses your basic obligations under Chapter 13 bankruptcy. The first obligations include filing the necessary paperwork at the start of the process. You should file a petition for Chapter 13 bankruptcy in your local bankruptcy court. The court also requires documents like your repayment plan and most recent tax return. You must also submit filing and administrative fees at the time.
Then comes your primary obligation: repaying creditors. Unlike Chapter 7, Chapter 13 works under the assumption that you can handle your debt if you restructure it. In accordance, the court expects you to pay those debts off.
Are you being targeted by debt collector harassment?
As a resident of Maryland, you may be looking into debt relief options. Your decision-making process could get impeded or sped up due to the harassment you may be facing at the hands of debt collection agencies.
Though it is illegal for debt collectors to harass you, they do not always follow the law. In these situations, is there anything you can do to relieve the burden of debt?
What is the Fair Debt Collection Practices Act?
The Consumer Financial Protection Bureau discusses the Fair Debt Collection Practices Act (FDCPA). This act came into existence when debt collectors began growing too aggressive in their pursuit of money. Under FDCPA, certain tactics of gaining payments became illegal. This included anything that oppresses, harasses or abuses you or anyone else debt collectors contact.
Some examples of the harassment you may face includes:
Use of profane or obscene language
3 tips on dealing with the stress of debt
Persistent stress takes a toll on your health, that is why you should minimize your stressors in life, including those surrounding your debt. Know that you are not alone in your struggles. Many Americans worry about the state of their finances.
If thoughts of your future overwhelm you because of debt, know that you can take steps to feel less hopeless.
Accept the blame for your debt
Although it might not be an easy step, accepting the blame for your debt will help you get to the bottom of the issue. The acceptance will feel empowering and through figuring out the root of your debt, you set yourself up for success. As part of taking responsibility for your debt, you can work with professionals like a CPA or financial planner to give you guidance.
Celebrate your progress towards debt elimination
You should try to decrease personal shame and isolation as you work towards debt elimination. Share your ups and downs with your friends and family. Not only will this create a special moment with your family, it will also help destigmatize debt. Small celebrations at milestones serve as inspiration to keep going.
Why are more older adults filing for bankruptcy?
Aging often comes with several health, medical and mental issues, but older adults often face financial hardship, too. In recent years, more older adults filed for bankruptcy to cope with their mounting money struggles.
MarketWatch explores the reason behind the tide of bankruptcy filings. Determine whether your or an older loved one's current financial state could lead to bankruptcy.
Medical issues
Older people often experience several health problems that require professional care, such as hearing, dental and eye issues. Medical complications often come with substantial costs, which can drain a person's insurance, personal savings and any other payment methods in place. Federal programs such as Medicaid and Medicare help, but they either do not cover all medical costs or have strict financial and asset restrictions in place that may disqualify a person from applying. Additionally, copays, deductibles and coinsurance can further strain one's finances.
Tax debts and Chapter 7 bankruptcy
Perhaps tax debt contributes to your overwhelming financial pressures, and you wonder whether filing a Chapter 7 bankruptcy can help. The answer is, it depends.
Here are some of the factors that affect whether a bankruptcy court will discharge the tax debt.
The type of tax debt
The IRS notes that you may be able to include your past income tax debts in your Chapter 7 bankruptcy, but most other types of tax debt are not dischargeable. These include property taxes, payroll taxes and trust fund taxes.
You cannot include any income tax debts for which you did not file returns. You may be able to include the penalties on dischargeable tax debt in your bankruptcy.
Eligibility for discharge
Requirements include these three factors:
- You filed tax returns for the relevant years at least two years before you filed for bankruptcy
- At least 240 days before you filed the bankruptcy, the IRS assessed your tax debt
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