For more and more seniors, retirement doesn't mean a debt-free life of
leisure. An increasing number of Americans aged 65 and older are declaring
bankruptcy, according to a recent study by John Pottow, professor of law at the
University of Michigan Law School.
Those aged 65 and older represented seven percent of bankruptcy filers in 2007,
a mind-boggling jump from 1991. They are the "fastest-growing age
demographic," according to Pottow's study.
What's the culprit for so much debt? Credit cards. Two-thirds of Americans who
filed for bankruptcy said credit cards were the key reason for their financial
problems, according to Pottow's research. Besides having more credit card debt
compared with younger bankruptcy filers, 44.8 percent of those aged 65 and older
also had more plastic in their wallets. "They're using credit cards as a
maladaptive coping mechanism," Pottow says.
Stephanie Osterland, a supervisor in the bankruptcy department at GreenPath debt
solutions, sees an increasing number of seniors living beyond their means. Says
Osterland: "They're just trying to live off of a fixed income, and that's
usually Social Security. Maybe they have a small pension. We find they've used
credit cards to supplement that income and expenses or they just end up getting
into a lot of medical debt."
In addition to escalating medical expenses, seniors have seen their portfolios
hit hard by the lagging stock market. Carolyn Rodi of Saving Your American Dream
says those considering bankruptcy should see a credit counselor at a non-profit
organization to get their finances in order.
Credit counselors, such as those at GreenPath, help the elderly deal with a
stressful situation. "We try to help them focus on what it's going to look
like" after they get out of debt, Osterland says.
Rodi also recommends that potential bankruptcy filers seek out pro-bono legal
aid. "There are a lot of elderly people that are being taken advantage of by
bankruptcy attorneys and mortgage brokers who are advising them improperly to
pay for the bankruptcy, take out a reverse mortgage or to do things that
aren't in their best interest," she says. "If you have no income, why
should you borrow to pay someone when you can get free legal aid?"
What are the chances of a senior paying off his or her debts? It's difficult
to determine, especially because seniors tend to be on a fixed income. And while
finding a job — such as a WalMart greeter — seems like a viable option, it
is not necessarily feasible for all seniors to work.
In addition, whether or not a person declares Chapter 7 (which involves the
liquidation of one's assets) or Chapter 13 (which allows debt restructuring)
bankruptcy can be a significant factor in determining what one's lifestyle
will be. "If you have to file for Chapter 7 bankruptcy, you may be able to
find affordable housing that allows you to just get by," says Rodi. "Chapter
13 lets you keep your house and doesn't touch your retirement savings."
Regardless, filing for bankruptcy is very stressful for anyone. "A lot of our
clients in that post-retirement age have a hard time coming to grips with their
situation," Osterland says. "It's very emotional for them. We try to focus
on the future and see if this debt can be lifted off their shoulders."
(Reuters)
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