Seniors: The Next Wave of Bankruptcies?
The rate of people over the age of sixty-five who are filing bankruptcy has more than tripled since 1991, according to recent study done by the “Consumer Bankruptcy Project”. Continuing at the current rate, Bankruptcy Courts will soon be overrun with the financially devastated elderly. 12.2% of filers are now 65 or order, as opposed to 2.1% in 1991.
Increased out of pocket medical expenses; disproportionate social security increases compared to true cost of living increases; pension failures of collapsed companies; being saddled with student loan payments that children or grandchildren; cannot, or will not pay; late life divorce or death of a spouse all contribute to the phenomenon. For some, the problem is made worse by “disappearing pensions.” An estimated $156 billion in defined benefit pensions are unclaimed according to the “Pension Action Center” based at the University of Massachusetts.
Pensions become “lost” for a variety of reasons. They are transferred during corporate buyouts and restructurings. People change addresses or their last names and become unreachable. Workers are never notified or they forget they have benefits, or just give up on trying to locate the resource. While many of these “lost” pension plan payments may only amount to a few hundred dollars a month, it can amount to a life line for the elderly who have no other source of financial support beyond Social Security. By the time they get to Bankruptcy Court their savings are used up.
Bankruptcy, as financial relief for these folks is mostly a matter of “too little, too late.” While Bankruptcy allows they to eliminate most of their debt it also destroys their ability to refinance to lower mortgage payments and of course health care expenses are usually ongoing.
Nor is the problem limited to the current “retirement population” according to the study, “The next generation nearing retirement age is also filing for Bankruptcy in greater numbers. This is because the 55 to 60 age group is carrying substantially more debt headed into retirement than those who went before them. Combined with lower income and reduced buying power they are forced more and more to rely on credit for emergencies.
Until the Real Estate crash, they could rely on refinancing their mortgage to hold repayment loads in check but that is no longer an option. There is little to no equity left to justify and expanded mortgage and lenders are not starting to raise rates on all types of loans. Given the hard truths for those carrying unmanageable debt, regardless of age, the sooner they weigh the pros and cons of filing Bankruptcy the more likely they will be able to survive old age at a reasonable level.
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