Senior Citizen Bankruptcy – Things I Consider

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“I got through the great depression not owing anyone a dime but now in retirement I am hounded by collectors,” is a complaint I often hear from a senior citizen  contemplating bankruptcy. Since seniors may disproportionally worry about collections, there are two common justifications for senior no-asset bankruptcies but properly counseling a senior about bankruptcy requires special sensitivity. During the initial consultation and before getting to the justifications for a Chapter 7 or Chapter 13 consumer or business bankruptcy, I want to consider the mental capacity of the senior and the influences that are bringing the client to me.

InfluencesIs there a spouse or an adult child encouraging a filing for self-benefit? One motivation could be the desire to avoid having creditor claims in a future probate estate. If the senior wipes the slate clean with a bankruptcy now, a later probate might be free of creditor claims.  Another influence could be the gift giving tendency of the client. Sometimes seniors drive themselves to the poorhouse helping children who accept assistance in reckless disregard of their parent’s needs. Still, sometimes the influence is a deceitful child who’s run up a marginally competent senior’s charge cards for their own gain.  If a pattern is obvious, I want to alert all concerned that bankruptcy will not really provide a fresh start unless the pattern changes. However, sometimes no matter how suspicious things seem, all involved actually do share the common goal of putting the senior’s affairs in order, giving them piece of mind and insulating them from debt collectors.

Mental Capacity. Compounding difficulties, sometimes I face a client in the early phases of dementia. However, diminished ability is not a disqualification from the ability to declare bankruptcy. Moreover, having some confusion does not necessarily make a client incompetent for bankruptcy purposes. Debtors are allowed to have help putting together the required information and making the mandated disclosures. The trick is to find a time of day or setting that maximizes the client’s abilities. But even if the client has lots of help answering the questions and reviewing the schedules, there are a few things he or she must be cognizant about: (1) The filer should understand that he or she is filing bankruptcy; (2) The filer should know that he or she has decided to file because of problems with debts; (3) The filer should be able to remember that he or she signed the bankruptcy schedules of their own free will after reviewing the information; (4) Even if the filer can’t remember the information, the filer should be able to recall that at the time of the review, he or she believed the information to be true and accurate. If the filer is not cognizant about these things, the assistance of a guardian or power of attorney agent may be required.

With these preliminary matters considered, I can then take a better look at the finances. With that, I appreciate that large charge card balances usually do not indicate that a spending spree has occurred. Medicines, medical treatment and health aides are commonly paid for by charge card. Repair people and independent care workers often charge seniors all they can. Numerous scams still target the elderly. Often, retirement benefits are not adequate for even a modest lifestyle. These factors often pave the way for the two most common justifications for a senior bankruptcy: Reclaiming peace of mind and regaining of control over finances.

Peace of mind. Collector calls and letters can be very confusing and disturbing. Collectors can get seniors to pay bills by using money needed for food or medicine. Even if “judgment proof,” the collection process can cause aggravation and affect health. Of course instead of filing Chapter 7, one could represent the senior on each bill by sending each creditor a protection letter pursuant to the Fair Debt Collection Practices Act (FDCPA). But instead of being a result, enforcement of protection under FDCPA could become on-going process. In contrast, Chapter 7 may offer a cost effective result that brings nearly immediate finality.

Control. As we become infirm we lose control over many aspects of our lives. This motivates some to try to exercise what control they can. Putting ones affairs in order is a form of maintaining control over one’s life.  Among the several ways that may be available to put ones affairs in order, the bankruptcy option may be attractive as being both cost effective and immediately obtainable. Thus, bankruptcy can be worthwhile personal experience resulting in a feeling of increased control and peace of mind by both the senior and the client’s family even if the financial change is marginal.

Finally, I never assume that every senior bankruptcy is going to be a noasset case. Dumb reliance on the bankruptcy assembly program is dangerous.  The assembly programs are mostly right but some circumstances exceed the program’s abilities. For instance, joint ownership in a senior case is just as likely to be between parent and child as between spouses and an unusual fact like that could cause the assembly program to mistake a category, putting assets into jeopardy.  Also, I review asset allocations and gifts made in the last few years to make sure that seemingly innocent transfers do not fall into  bankruptcy’s preference or fraudulent conveyance traps.  It takes time to review client transactions and it takes time to match all assets and benefits to exemptions but that makes the foundation of a good client outcome!

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