BK as a retirement strategy?

[btbeme]

Been thinking lately...

When a person or a couple has earned the age to retire, what keeps them from doing so?

1. A lack of funds to cover their current bills
2. The safety net was pulled out from under them (their IRA, pension, etc was torpedoed by the markets, etc)
3. They did not (or were not able) to save or invest and now live check to check into their retirement years

What else?


Get my drift? Is this the future of retiring America, when we cannot count on Social Security to pad our nest eggs (or, God forbid, to BE our nest egg), when the market or the dollar (Ha! The dollar!) can erase thirty years of savings and investments overnight, when hyperinflation threatens to drive milk prices to the stratosphere, when a bankruptcy judge eliminates our pension as part of a Ch 11 filing by our Fortune 500 company...?

We have master-planned communities for our seniors. We have specific medical and prescription plans to support them when they cannot be expected to support themselves. We give them discounts at the restaurant and grocery store on Tuesdays simply because they have lived so long. We do a lot for our Seasoned Citizens, mostly because, well, they earned it - by fighting a war or two for us, building a country for us, etc.

Is a strategic BK before retirement out of the question? Does a Senior Citizen BK become the new Social Security? Just asking... Just thinking...

[BROKEDED]

Don't know about retirement but with the enormous amount of people filing BK and the relative ease with which massive amounts of debt are erased, I wouldn't be surprised to see alot of folks filing again later in life BUT as you said, as a strategy, versus being caught off guard and it being a necessity.

I was amazed at the ease of erasing over $300,000 worth of debt. One can't help but think how you could have made it better for yourself if you had it to do over. With individuals, there seems to be some moral hazard but large companies often seem to plan well in advance. Maybe they just have assets protected to begin with in case such a situation arises. Of course, businesses are always aware of gains and losses whereas individuals often assume they'll always have an income and pay their bills.

[keepmine]

Loks like the old folks are down with the idea.

http://www.totalbankruptcy.com/news/articles/statistics/elderly-filing-bankruptcy-rates.aspx

Senior Citizens Filing Bankruptcy


By: Gerri L. Elder

A new study indicates that elderly Americans are filing bankruptcy at a faster rate than other adults.

The study by AARP showed that between 1991 and 2007, the number of people aged 65 and older who were overwhelmed with debt and unable to pay rising medical costs and thus filed bankruptcy went up by 150 percent.

The Consumer Bankruptcy Project found that among people aged 75 to 84, the rate of filing bankruptcy had increased by 433 percent.

USA Today reported that although the study did not cite the specific reasons behind the increasing rate of senior citizens filing bankruptcy, many believe that the rising costs of uninsured medical bills have caused many elderly people to rack up unmanageable debts.

George Gaberlavage, director of consumer and state affairs at the AARP Public Policy Institute, told USA Today that out of pocket medical expenses have been going up and this has caused financial hardships for many elderly Americans. Gaberlavage says that he believes that health care costs are the largest cause of the increased number of senior citizens filing bankruptcy.

The study also noted that during the same time period, the number of younger Americans filing bankruptcy actually declined.

The initial report in the Consumer Bankruptcy Project by AARP based the 2007 bankruptcy statistics on a national sample of 2,435 responses from people who had filed bankruptcy. A later study promises to spell out the individual factors behind the increase in elderly Americans filing bankruptcy.

However, to many, the reason is already fairly clear. The sagging U.S. economy, rising prices of food and gasoline and uninsured medical expenses are driving many Americans to file bankruptcy, but for the elderly who are living on a fixed income, these economic factors can drive them beyond filing bankruptcy and into poverty.

When the new bankruptcy law took effect in 2005, the number of people filing bankruptcy across all age groups temporarily fell. Even the stricter bankruptcy requirements were not enough to stave off many people who were so smothered with debt that filing bankruptcy was the sanest option. Soon the number of people filing bankruptcy began to rise again.

The AARP study shows that senior citizens in the U.S. are being hit hardest by the poor economy and are unable to pay the large amount of uninsured medical bills that are piling up on them.

Social Security checks cannot stretch far enough to cover all of the expenses that elderly people now have. Many Americans are not prepared for retirement and have unpaid debts that they simply cannot pay on their limited incomes. When uninsured medical expenses begin to add up, many cannot make ends meet and find that filing bankruptcy is the only way to survive.

[IHateChase]

Interesting thought. But so much would depend on your state exemptions, especially your home. Many seniors could have considerable equity and measly exemptions. If one wanted to stay in their NJ home, the 20-40K wouldn't go very far. Perhaps a closet somewhere.

[btbeme]

Interesting thought. But so much would depend on your state exemptions, especially your home. Many seniors could have considerable equity and measly exemptions. If one wanted to stay in their NJ home, the 20-40K wouldn't go very far. Perhaps a closet somewhere.

Valid point.

With so many unilateral disarming strategies lately (reverse mortgages come to mind), I wonder if it is wise to be caught unaware?

For instance, it is perfectly legal to move to a state that has more generous living conditions. Unlike the Soviet Union of old, you are not required to "show your papers" when you cross an imaginary boundary to another state or munincipality.

Does that mean that retirement planning circa 2018 will include a listing of Most Favored Exemptions? It used to be free golf and half-price crab legs.

[ttg1]

I guess the depends on your age, doesn't it.

What I mean is that this strategy might work for the next few years but the reality is that credit is tighter now than it has been for decades and I don't see that changing anytime soon. So if you're 57 today I think the idea that you will be able to strategically "borrow" 100K while your working and then declare BK when your 65 is unlikely to work. Loaning 100K to people with 30K incomes just isn't happening anymore.

[btbeme]

All I know is that a lot of people have earned the right to a few years' comfort for their contributions.

What an absolute shame that more of our seniors every year are actually the working poor.

[btbeme]

With individuals, there seems to be some moral hazard ...

...And I believe there should be - and there exists - a severe moral hazard to BK. But, given the choice between dropping dead at the checkout stand (aged 81) because I have no other choice vs. a legal means to being able to, at very least, enjoy a year of my Golden Years, I know what I would choose.

My point is, today's seniors are not necessarily the same as tomorrow's seniors. I believe a trend is developing that responsible people are discovering that the light at the end of the tunnel is a gorilla with a flashlight. Is a "Responsible Bankruptcy" industry about to develop around our seniors? Reverse mortgages are all the rage because or seniors have built equity in their lives. What happens when responsible adults are no longer able to do so because of forces beyond their control?

I could pay into my house for the next 14 years and not break even, to say nothing of the massive down payment I paid when I bought. Is it morally or ethically irresponsible of me to instead declare BK, erase that legal obligation, and pay into my retirement so I am not a burden to society in 20 years?

I am just begging the question. I have no real opinion here...just thoughts.

[jst4f]

If the deck was not stacked against us by the banks/federal government on modifying mortgages and ever increasing taxes at all levels of government, BK could been view as irresponsible financial plan for seniors. But that is not the case, is it? I would be hard pressed to blame a senior for taking that path expecially for medical bills.

[Scooter10]

...And I believe there should be - and there exists - a severe moral hazard to BK. But, given the choice between dropping dead at the checkout stand (aged 81) because I have no other choice vs. a legal means to being able to, at very least, enjoy a year of my Golden Years, I know what I would choose.

My point is, today's seniors are not necessarily the same as tomorrow's seniors. I believe a trend is developing that responsible people are discovering that the light at the end of the tunnel is a gorilla with a flashlight. Is a "Responsible Bankruptcy" industry about to develop around our seniors? Reverse mortgages are all the rage because or seniors have built equity in their lives. What happens when responsible adults are no longer able to do so because of forces beyond their control?

I could pay into my house for the next 14 years and not break even, to say nothing of the massive down payment I paid when I bought. Is it morally or ethically irresponsible of me to instead declare BK, erase that legal obligation, and pay into my retirement so I am not a burden to society in 20 years?

I am just begging the question. I have no real opinion here...just thoughts.

I would say it is a valid strategy. Take your "older" person that is retired, has mounting bills from a lifetime of spending, a house that is underwater, then add a hefty 401K package and pension that the BK can not touch. They would be able file BK, wipe out the debt, keep their 401k and pension and be in a better position to enjoy rettiement.

It is a moral hazard though, BK is not socially accepted which can effect the filer at the age.

[IHateChase]

Valid point.

With so many unilateral disarming strategies lately (reverse mortgages come to mind), I wonder if it is wise to be caught unaware?

For instance, it is perfectly legal to move to a state that has more generous living conditions. Unlike the Soviet Union of old, you are not required to "show your papers" when you cross an imaginary boundary to another state or munincipality.


Does that mean that retirement planning circa 2018 will include a listing of Most Favored Exemptions? It used to be free golf and half-price crab legs.

Yes, those "best places to retire" lists will not only include state tax info, housing costs, and Best Early Bird Specials, but, absolutely, Most Favored Exemptions. Isn't that how Texas got a bit of its early population? I think I read that here somewhere.
But this move would require a good bit of planning. You'd have to have enough time to safely reallocate the equity or qualify for your new state's exemptions. That 20-40K, btw, is Fed. NJ gives you virtually NOTHING.

One thing this forum has taught us all is that it's never a good time to be caught unaware!
As to the morality... screw that. Survival has to come first. Banks have no morals.

[angles]

One thing this forum has taught us all is that it's never a good time to be caught unaware!
As to the morality... screw that. Survival has to come first. Banks have no morals.

So true. I still have a few working years left before retiring. I often think about a strategic BK knowing what I know now about the process. It would be easier to do a second time around and I would start planning year’s prior.

[magua2]

So true. I still have a few working years left before retiring. I often think about a strategic BK knowing what I know now about the process. It would be easier to do a second time around and I would start planning year’s prior.

There was a case recently where the judge dismissed the BK because the couple was obviously doing it to enhance their retirement. The income they would be receiving in retirement was a large amount and they would have come out in a very nice place had the BK gone through. I don't remember the details, maybe someone else has heard of this?

[dman]

My quick take:

Planning on filing for bankruptcy just before retirement is wrong. Fraudulent even, if you are racking up huge cc bills just before you retire, and KNOW you're going to file.

Being informed about how bankruptcy works, and having all your ducks in a row JUST IN CASE, is completely different. You aren't planning on filing for bankruptcy, but you have everything setup where you'll be in good shape just in case. I.e. you're looking to move, you pick a state that has good jobs in your field, and generous bk exemptions. You sock away as much into exempt assets as possible (house payment, 401k, roth ira, etc. etc.). You live within your means, you have some cards but don't use them that often, and BAM! Crap hits the fan (lose job, medical bills, got sued, whatever). Once the dust settles, you file for Chapter 7 (or 13 if necessary), and you come out the other end in pretty good shape. Your retirement plans won't have to be altered much (maybe you'll work an extra year, if that).

[Pandora]

My quick take:

Planning on filing for bankruptcy just before retirement is wrong. Fraudulent even, if you are racking up huge cc bills just before you retire, and KNOW you're going to file.

Being informed about how bankruptcy works, and having all your ducks in a row JUST IN CASE, is completely different. You aren't planning on filing for bankruptcy, but you have everything setup where you'll be in good shape just in case.

Explain why you feel there is a difference between the 2 - as I can see none - as in the end, BK is still being looked at either way. Doesnt matter about being "informed / ducks in a row" as you're still looking into BK as a means "just in case.." - no different than planning a BK. Fraud is up to the Trustee to determine - not us.