Many look forward to retirement as a time for relaxation and enjoyment after years of work. Unfortunately, sometimes the unexpected derails those plans, and retirees are faced with overwhelming debt.
What impact does filing for bankruptcy have on your retirement income?
The means test
As you approach retirement age, you likely have a vision of how you plan to spend your time. You may be looking forward to traveling, hobbies, and spending more time with family. You certainly don’t expect to file for bankruptcy, but there are several reasons why older people might need to, such as:
- Medical debt
- Reduced income
- Unforeseen home or vehicle repairs
- Investment losses
Any of these things might suddenly put you in overwhelming debt and worried about how you will make ends meet. If so, filing for bankruptcy may be your best option.
In a Chapter 7 bankruptcy, you must surrender any assets not covered by exemptions so they can be liquidated to pay off creditors. Fortunately, your retirement funds, such as pensions, 401(k)s and IRAs. are exempt from creditors.
However, your income from them determines if you pass the means test. Connecticut’s cutoff annual income for two people in a household is $100,539. If yours falls below this level, you may be eligible to file for Chapter 7 bankruptcy.
This type of bankruptcy may eliminate most of your unsecured debt, such as credit card and medical expenses. However, you will still be responsible for the secured debt, which typically includes mortgages or vehicle payments. Your ability to keep those items will likely depend on your ability to maintain them.
If you are worried about your debt and considering bankruptcy, you should discuss your situation with someone who understands the variables. They can go over your options and help you with your decision.