When filing for Chapter 7 bankruptcy as a senior citizen, it is important that you understand how filing for bankruptcy will impact your income, which at this point in your life is most likely coming from retirement accounts as well as social-security payments.
#1: Retirement Accounts
When you file for bankruptcy, the money that you have saved up in your retirement accounts is generally protected by federal law. This protection was put in place to encourage people, even those in debt, to save for their retirement. Additionally, this protection helps ensure that even those who go into bankruptcy can take care of themselves during retirement.
All retirement accounts that are tax exempt are protected. This includes more traditional retirement accounts such as 403(b) plans and 401(k) plans as well as profit-sharing plans and defined benefit plans. Additionally, both Roth IRAs and regular IRAs are protected up to a certain amount. If you have an extremely high amount saved in your Roth IRA or regular IRA account, you may want to discuss the option of Chapter 13 bankruptcy with your attorney instead of Chapter 7 bankruptcy; Chapter 13 bankruptcy can help protect your IRA account if the amount you have saved exceeds the federal protection level.
#2: Social Security
When you file for Chapter 7 bankruptcy, the income that you receive from your social-security benefits is protected as well. You will not have to hand over your social-security income to pay your debts, and your creditors cannot seize that money from your bank account. That means you can still provide for yourself while working to settle your debts.
It is best to set up a bank account just for your social-security income if you are filing for bankruptcy. This will make it easier for you to establish which part of your income creditors cannot garnish and will help you more easily protect your social-security income.
Additionally, all income you obtain from social security is not included in the means test that the court system uses to determine whether you qualify for Chapter 7. Make sure that this income is excluded when your means test is created.
If you are retired and have to file for Chapter 7 bankruptcy, your retirement and social-security income should be protected. Make sure that you discuss with issue with your attorney to ensure that these sources of income are properly protected from your creditors.
For more information, talk to a bankruptcy attorney, such as one from Shoemaker & Dart P.S. Inc.