Seniors are Filing Bankruptcy at an Alarming Rate
According to the Merriam-Webster dictionary, our golden years are defined as “the advanced years in a lifetime” or “the time of life after retirement from active work.” For a select few seniors, the golden years are a time of wealth and relaxation with grandchildren or other loved ones after saving diligently to enjoy the wonderful fruits of hard work. But for other seniors, the golden years are fraught with frail financial health and the threat of poverty brought on as they relied too heavily on social security benefits and not enough on their own diligent retirement savings or brought on when they chose a counterproductive lifestyle that made saving untenable and now it is too late for wealth accumulation.
Experts all agree seniors aren’t saving at a healthy pace. Robert McGarvey, in his article How to Combat the Senior Poverty Epidemic, indicates approximately 30% of all Americans have exactly zero saved for retirement with 23% having saved less than $10,000. Dave Ramsey, one of the nation’s leading savings guru indicates that more than 50% of workers aged 55 and older have less than $50,000 for retirement. According to Mr. Ramsey, of those who actually retire, on average, they have less than $60,000 set aside.
If you are one of those seniors who finds themselves in that scary position of having saved too little, or in the alternative, to have experienced life events that were out of their control and caused financial despair, you are not alone, and bankruptcy may be in your future. Senior bankruptcy filings are increasing at an alarming rate. According to the August 2018 legal paper, Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society, using data from the Consumer Bankruptcy Project, there has been a more than two-fold increase in the rate at which seniors (age 65 and over) file for bankruptcy and an almost five-fold increase in the number of older people in the U.S. bankruptcy system. Still others like Gary Haver of The News Journal confirm similar findings. Mr. Haver notes that in 1991, people over 55 comprised 8.2% of bankruptcy filings, but by 2007, that amount had jumped 22.3% with the fastest increase among those who filed coming from people 65-75.
What are the primary causes of bankruptcy in seniors? Most experts agree bankruptcy arises in seniors because of one or more of the following: (1) Disability; (2) Insufficient Fixed Incomes; (3) Health Issues; and (4) Poor Financial Planning.
- Disability: While there are seniors who become disabled and unable to work or contribute to their savings, the number of seniors who are disabled is actually on the decline. Researchers for the National Long-Term Care Study (http://www.nltcs.aas.duke.edu/) found that between 1982 and 1999, the number of seniors who were disabled decreased from 26% to 20%. Factors such as improved medical treatment, improved behavioral changes, and rising education levels seem to have decreased the instances of disability in senior Americans.
- Insufficient Fixed Incomes: According to the Social Security Administration, the manner in which employers provide for the retirement of their employees is significantly changing in our country. The number of employees covered by a traditional defined benefit (DB) pension plan that pays an annuity over the lifetime of an employee, historically based on the length of employment and final salary, has been steadily declining for over 25 years (from 1980 through 2008, the number of employees receiving DB pensions fell from 38% to 20% (Bureau of Labor Statistics 2008; Department of Labor 2002)). By contrast, the number of employees covered by a defined contribution (DC) pension plan such as a 401K or a similar investment account established and often subsidized by the employer, but owned and controlled by the employee, has increased from 8% to 31% in the same period of time. Ironically, while pensions or DB plans appear on their face as the more stable forms of retirement benefits, many such programs established in the United States are now burdening employers. Nonetheless, public-sector DB pension plans may also face increasing stress in future years. Approximately 46% of such pension plans were underfunded in 2008 and correcting the funding deficit will continue to challenge employers nationwide if state and local tax revenues decline. Ultimately, financial and political pressures may cause some pension plans to become frozen or resort to defined contribution plans.
- Health Issues: Seniors are more susceptible for health issues than most. While Medicare covers most seniors, it is not designed to cover all costs of medical care and treatment. Prescriptions and some treatments become cost prohibitive as seniors experience a fixed or reduced income. Major illnesses or multiple illnesses can often lead to bankruptcy or cause seniors to incur thousands in unpaid and uninsured medical expenses.
- Poor Financial Planning: The fact that the average credit card debt for Americans is a whopping $15,000 according to the National Reserve, leads any reasonable person to assume we haven’t taught our children everything they need to know in public schools for quite some time. Today, they are required to learn sex education in public schools where topics such as condoms, STDs and intercourse are discussed, but they are not required to learn about retirement, credit cards, IRAs and interest rates. Heather Long, a CNN contributor correctly notes in her article Sex ed, is required. Why isn’t financial education?, that the American Dream isn’t possible without understanding saving, investing and the use of debt wisely.
The decision to file bankruptcy isn’t one seniors should take lightly. Online legal service legalzoom suggests seniors should ask themselves following: “Do you only make minimum payments on your credit cards?; Are bill collectors calling you?; Does the thought of sorting out your finances make you feel scared or out of control?; Do you use credit cards to pay for necessities?; Are you considering debt consolidation?; and Are you unsure how much you actually owe?” If yes is the answer to two or more of the above-written questions, seniors should consider speaking to an attorney to explore bankruptcy options.
But seniors should consider filing bankruptcy only when they are at a point where working out of debt isn’t feasible. They should never file when there is a reasonable manner in which to handle the debt pursuant to a straightforward and achievable plan with or without legal or financial professionals. Many seniors are on fixed incomes with few assets. If this is the case, they may be judgment-proof and there is no need to file bankruptcy at all.
Bankruptcy has some advantages. Namely, it discharges debt and, in the process, prevents creditors from contacting debtors and demanding payment. But there are some real disadvantages as well. In most instances, debtors are forced to sell or surrender assets like their home and bankruptcy is somewhat devastating to a credit score. Our firm provides counseling to seniors and younger adults on the pros and cons of filing bankruptcy as part of our customary practice areas. Feel free to call our office for a free initial consultation.
Todd Miller is a Partner with the Law Office of Todd Miller, LLC located in Jefferson City, Missouri. He was once again recognized by AVVO.com as Top Contributor in 2018 and in 2017 he was recognized as Advisor of the Year by GolfInc. Magazine. He annually receives the Client Distinction Award by Lawyers.com and he writes and lectures on various legal topics. You may find him on Facebook, Google+, LinkedIn, and Twitter and at 1305 Southwest Blvd., Suite A, Jefferson City, Missouri 65109 firstname.lastname@example.org, www.toddmillerlaw.com (573) 634-2838