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Bankruptcy after Retirement: Ch 7 or Ch 13?

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    #1

    Question Bankruptcy after Retirement: Ch 7 or Ch 13?

    My dad, who is in his late 70s, has gotten himself into too much unsecured debt. He has assets, which are all in retirement accounts (IRAs) and investments (stock). Also a house, under a mortgage but not (thankfully) under water. About 1/3 of the debt is an unsecured loan is left over from a business loan that he personally secured, for a business that he sold more than 10 years ago.

    He keeps drawing on his retirement funds to supplement his social security, just so he can service all the debt. He's thinking about bankruptcy, but I'm not sure whether the fact that he has retirement income (social security and small dividends) means he should consider Ch 13, or if he could file Ch 7 and keep his retirement accounts intact (and keep his house). I'm also concerned that he will lose the good credit he has, and never be able to rebuild it because he's retired.

    I searched through the forums, but I could not find any posts about retired people filing for bankruptcy. If there are threads about this topic that already exist, please point me to them!

    (I joined this site about 6 years ago after filing bk myself, have rebuilt my credit, and am very glad to have this resource to turn to in this difficult time for my family. Thank you for listening!)
    Last edited by tess_bk; 06-27-2012, 09:15 PM. Reason: Correct the # of years ago I joined this site! Thought it was 10 but it was only 6.
    Filed: August, 2003
    Discharged: Thanksgiving Eve, 2003
    Total Consumer Debt Granted Since BK: $6,100
    Total Consumer Debt Left to Pay Off: $1,300 (Plus $50K+ in Student Loans ... )
    Tags: bankruptcy, exemptions, ira, retired, retirement
    #2
    Traditional retirement accounts are generally safe in a Ch 7, depending on what they are, how big they are, and how they are structured, but I would strongly advise your dad to meet with a couple attorneys to go through all the finer points. You might consider going with him as an extra set of ears. The 2005 changes to BK law made it very difficult for retirement funds to be considered part of the bankruptcy estate, but there are exceptions.

    And, why not sit with Dad to plan his budget for post-BK so the problem does not arise again?

    In my opinion, all seniors should get a freebie Ch 7 the day before they turn 65.

    Comment

      #3
      At his age he should stop worrying about his credit rating. Seriously, what does he need it for? Not worth liquidating your retirement for. Better he should learn to live on cash. I mean this in the nicest way but... Nobody's CR ever got engraved on their tombstone.

      I'd be concerned about the house. Any idea what his equity situation is?
      Lots of mention here about people who are collecting SS and pensions, but usually there isn't much in the way of assets. Mainly the discussion tends to center on how the funds are collection proof.

      Get an idea of the value of his assets and have a sit down asap with a coupla three lawyers.

      Keep On Smilin'

      Comment

        #4
        Originally posted by keepsmiling View Post
        Better he should learn to live on cash.
        I agree. I've been telling him that if he doesn't want to do a bk, he should just take as much as he can out of his retirement accounts and pay everything off! (Well, except for the business one, which I think he should negotiate down, and then pay off.)

        Originally posted by keepsmiling View Post
        I'd be concerned about the house. Any idea what his equity situation is?
        He bought his house in 2006 at an inflated price; he's sunk a lot into it, but refinanced recently to lower his payment, and now owes about 10-20K less than what he might be able to sell it for. Not a lot of equity.

        So now, I need to ask a silly question - he doesn't have a lot of cash flow, so he'd have to pull some money out of one of his retirement funds to pay for a pre-BK consultation with a BK lawyer. Anyone know how much they might charge?
        Filed: August, 2003
        Discharged: Thanksgiving Eve, 2003
        Total Consumer Debt Granted Since BK: $6,100
        Total Consumer Debt Left to Pay Off: $1,300 (Plus $50K+ in Student Loans ... )

        Comment

          #5
          My concern would be his investment portfolio (stocks). If they are not tied to an IRA or similar retirement plan they may be at risk. Your dad needs to make sure the stock and the income stream it produces can be covered by an exemption. If not and he does not want to lose the asset he will be looking at a Chapter 13 if he chooses bk.

          He need not pull any money out now. Consultations are usually free. Once he decides if he is going to file and what Chapter then he can think about how to pay for it.

          Des.

          Comment

            #6
            Originally posted by tess_bk View Post
            I agree. I've been telling him that if he doesn't want to do a bk, he should just take as much as he can out of his retirement accounts and pay everything off! (Well, except for the business one, which I think he should negotiate down, and then pay off.)



            He bought his house in 2006 at an inflated price; he's sunk a lot into it, but refinanced recently to lower his payment, and now owes about 10-20K less than what he might be able to sell it for. Not a lot of equity.

            So now, I need to ask a silly question - he doesn't have a lot of cash flow, so he'd have to pull some money out of one of his retirement funds to pay for a pre-BK consultation with a BK lawyer. Anyone know how much they might charge?
            The consultation (up to a half hour, at least) should be free, and he could take his latest account statements with him when he meets with one. I don't know how much your dad has in retirement accounts, but an IRA is exempt up to a little over one million dollars. I am in a somewhat similar situation as your dad, it sounds like, but am still working as much as I can find. And I had been using my retirement funds to pay my credit card debt because I just never seriously considered (outright rejected bk when a good friends suggested it a couple years ago, even, I was that stupid!) not paying it all. So I really hope your dad doesn't pay them all off, unless the amount is trifling in comparison to his account. Getting used to bad or mediocre credit is not nearly as frightening as the spectre of (myself) living under a bridge passing the Riunite.
            Last edited by kawh; 07-31-2012, 02:51 PM.

            Comment

              #7
              Originally posted by kawh View Post
              Getting used to bad or mediocre credit is not nearly as frightening as the spectre of (myself) living under a bridge passing the Reunite.
              This is a GREAT quote! It should be a board motto, standard advice for all newcomers. (with the spelling fixed, not to be insulting but I'm a litltle anal about that- or we could just change it to Mad Dog lol) Now to find a nice pic to go with it and we are all set.

              Keep On Smilin'

              Comment

                #8
                Thx keepsmiling, it is fixed I hope. Don't often have to spell that particular variety.

                Comment

                  #9
                  We could substitute Mad Dog or Ripple...
                  "To go bravely forward is to invite a miracle."

                  "Worry is the darkroom where negatives are formed."

                  Comment

                    #10
                    Thanks for all the helpful suggestions!
                    Filed: August, 2003
                    Discharged: Thanksgiving Eve, 2003
                    Total Consumer Debt Granted Since BK: $6,100
                    Total Consumer Debt Left to Pay Off: $1,300 (Plus $50K+ in Student Loans ... )

                    Comment

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