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Senior Bankruptcy: Options to Consider Before Retirement

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As many of us have experienced a difficult past few years, our elders have faced even more financial burdens than anytime in recent memory. An unfortunate reality is that many people reaching retirement age don't have enough money saved for retirement and many who do unfortunately find that it doesn't last until they pass on. Senior Bankruptcy is an option to alleviate the financial burden of debt, but also the added stress from being behind on bills and the additional late fees imposed from it. In our article, we help you understand the factors that may influence your decision to declare bankruptcy before and after you retire.

Determining Eligibility for Bankruptcy

In Illinois, by law, all bankruptcy consultations with an attorney must occur in-person to ensure the person meeting with the attorney is the person who is seeking to declare bankruptcy. 

Senior bankruptcies involving a parent can be accomplished with an attorney, however, even if you are the power of attorney, if you’re the power of an attorney for a parent, most attorneys may require the parent to be present.

What is the Bankruptcy Means Test?

In Illinois, when you meet with an attorney, in-person, a bankruptcy “means test” is given to you to list your income, debt and assets to determine your ability to repay your debts and determine your eligibility for debt relief under Chapter 7 or Chapter 13 bankruptcy.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the erasure of all private debts, with the exception of student loan debt (extreme circumstances excluded) and while low income filers are typically granted the right to declare bankruptcy, those with higher incomes that have a high debt to income ratio can also be eligible.

Chapter 13 Bankruptcy

People eligible for Chapter 13 bankruptcy enter a court mandated repayment plan. This type of plan allows higher earners or those who wish to keep certain assets.

Understanding the Factors that May Influence a Senior Bankruptcy

Every year the cost of many things goes up, however recently, inflation has added an additional financial burden on all of us, especially those with fragile incomes like Social Security. However, having a better understanding of the factors that a senior bankruptcy entails can help you decide if it's right for you, or a parent.


Depending on the circumstances, debt, and income you have, it is possible to keep a home. During bankruptcy proceedings, the court will not take away anything necessary for your daily life including reasonably priced vehicles, clothes and other household items.


If you or a loved one has assets that you don’t want to forfeit, such as a property that your loved one has left to you in their estate plan, while Chapter 13 may result in a higher monthly total payment, it allows you to keep chosen assets.

In Chapter 7 bankruptcy, the Homestead exemption is only $15,000 dollars which means that if you have $150,000 in built up equity and $135.000 would be subject to forfeiture to creditors which is typically done through the sale of the property.

Declaring Bankruptcy in Illinois With Retirement Accounts

Most retirement accounts are exempt as assets under Illinois bankruptcy laws before distribution payouts begin and the total amount in those accounts has no bearing on either Chapter 7 or 13 bankruptcy as long as the total of those accounts remains under $1,362,800.

If your accounts total more than this amount, all amounts above this may be subject to forfeiture to creditors. 

Once distribution payments from retirement accounts have begun however, in Chapter 7, creditors can potentially access the remaining portion of those payments after you meet your living expenses while Chapter 13 requires that income to be factored into your repayment plan. 

When filing Chapter 7, anything you bring in from your retirement accounts that is above what you need to survive can be taken, and for Chapter 13 your monthly income from your retirement accounts will be factored into your 3 to 5-year repayment plan.

Declaring Bankruptcy in Illinois With Social Security

Social Security Benefits are factored into your income in a similar manner to your retirement accounts and income.

However, many banks have additional protections in place and are required to know if an account is receiving Social Security or other Federal benefits before allowing garnishment of funds from the account and at least two months’ worth of benefits must always stay in the account at all times.

When is the Right Time to Declare Bankruptcy?

While every person’s financial situation is different, if you’ve begun falling behind on your payments, understanding your options allows you to help determine the best time to seek assistance through debt consolidation, Chapter 7 or Chapter 13 bankruptcy.

Illinois Bankruptcy Attorneys & Debt Consolidation Legal Services

If you're behing on your bills and considering retiring, contact our office to schedule a free consultation with our bankruptcy attorneys to learn how we can give you additional peace of mind during retirement.

Zara Law Group has a long standing history of assisting financially stressed individuals and business. Call 708-365-8411 to schedule your free in-person bankruptcy consultation today.

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