Leaving the workforce is exciting as you think about the new opportunities that await you, but you could have significant concerns about retiring if you are in trouble with debt. You will no longer be receiving wages, and any income you have from retirement sources would presumably go toward paying your accounts. It is understandable that many people are hesitant to even retire because of debt, so it is essential to review options. With bankruptcy for retirees, you can protect your Golden Years in Georgia and look forward to becoming debt-free.

Your goals, timing, and other decision making for retirement should be viewed alongside bankruptcy options, including Chapter 7 and Chapter 13. Both types of bankruptcy may help you discharge qualifying debt if you qualify. However, your income, retirement savings, and details about retirement accounts are critical issues. You do not want to put your retirement plans at risk without carefully considering the most important factors.

 

Because your future and enjoyment of life are so important, you can best leverage the benefits of Chapter 7 and Chapter 13 when you have experienced legal counsel on your side. Even minor mistakes can lead to problems and delays. A Georgia bankruptcy lawyer will explain the laws and assist with the legal process, and some basics about protecting your Golden Years are helpful. 

 

Chapter 7 Basics

There are two types of bankruptcy that are common for individuals and married couples, and one is Chapter 7. You may wipe out all qualifying debt if you are eligible under US bankruptcy rules, which are based upon your income:

 

• You automatically qualify if your earnings are below the state median income level for a household of your size.
• If you do not automatically qualify, you may be eligible under the Means Test. In addition to reviewing your income, your monthly expenses are assessed.

 

While you are able to eliminate debt through Chapter 7, there is an important caveat. The bankruptcy trustee has power over your assets, with the authority to liquidate them to satisfy your debt to creditors. However, the trustee can only sell nonexempt real estate and personal property. Some items cannot be liquidated, and there are limitations on other assets. Fortunately for retirees, there are laws to protect your hard-earned retirement from Chapter 7 liquidation.

Bankruptcy Under Chapter 13

Another type of bankruptcy that you might consider is Chapter 13, a legal proceeding that also results in the discharge of qualifying debt. However, there are two important factors that distinguish Chapter 13 from Chapter 7.

 

• With Chapter 13, there is no liquidation of assets. Instead, the laws aim to satisfy your debt to creditors through a debt repayment plan. After a restructuring of your debt, you pay a monthly amount for 3 to 5 years. Once you complete the terms of the debt repayment plan, your qualifying debts are wiped out.

 

• The eligibility criteria for Chapter 13 are relaxed compared to Chapter 7. In order to qualify, you must have a job to earn the income necessary to complete your debt repayment plan.

 

Based upon these two factors, retirees might be required to go with Chapter 13 for eligibility reasons. However, you might also consider Chapter 13 even if you would qualify for Chapter 7. Your assets will not be liquidated. This is important to many debtors filing for bankruptcy, even though your retirement would be exempt regardless.

 

Retirement Exemptions and Bankruptcy for Retirees

With these summaries of the two types of bankruptcy, it is important to understand additional details about how retirement affects Chapter 7 and vice versa. As mentioned, you can protect your Golden Years through bankruptcy because of a federal statute. The Employee Retirement Income Security Act  (ERISA) was enacted to provide employees with a wide range of protections associated with their insurance, retirement, and other employment benefits. 

 

One provision of the law states that all retirement plans covered by ERISA cannot be liquidated in Chapter 7 because they are considered exempt. As long as your savings are held by a plan administrator, the funds cannot be touched. This is a relief to many people as they approach retirement or think about putting off retirement because of financial difficulties. You are able to retain the value of:

 

• A Roth or traditional IRA;
• Funds in a 401(k);
• Many profit-sharing plans;
• SEP and SIMPLE IRAs; and,
• Many other retirement savings.

 

In addition, there are many additional exemptions available under Georgia law. Basically, the laws ensure that filers can keep necessary assets, but luxury items could be subject to liquidation. Examples of exemptions for Chapter 7 include:

 

• Up to $21,500 of the equity you own in your home;
• Up to $43,000 of your home’s equity if you are married and filing jointly;
• A maximum of $5,000 in equity in your vehicle; and,
• Funds you receive as alimony and child support.

 

Other Facts About Retirement and Bankruptcy

It is reassuring to know that your retirement is protected from certain aspects of the bankruptcy process, but there are impacts that retirees need to know. An important note is that your retirement could disqualify you from filing for Chapter 7 bankruptcy. Your income from a pension or other retirement savings might be higher than the state median income level, or it may be too much to help you pass the Means Test.

 

In addition, there are some critical points about Chapter 7 and Chapter 13 bankruptcy to review:

 

• It may be tempting to think you should take early withdrawals from your retirement accounts to pay down debt. However, the funds are only protected in bankruptcy as long as you do not access them before retirement. Once the money from a retirement withdrawal is in your account, it is subject to the bankruptcy process.
• There are some debts you cannot discharge in Chapter 7 or Chapter 13 bankruptcy. You cannot wipe out debts related to alimony, child support, certain lawsuits, some types of taxes, and most fees payable to the government.
• You cannot discharge secured debt in bankruptcy, including your mortgage. When you have pledged your home as security for the loan, the lender can enforce its rights through a foreclosure action. Alternatively, the bankruptcy trustee could liquidate your home and pay the bank, allowing you to keep the exemption amount for your equity.

 

Leverage Bankruptcy Benefits

Chapter 7 and Chapter 13 carry advantages for debtors of all ages, but the benefits are very important for those getting out of the workforce. When you retire, you do not want debt hanging over your head, preventing you from enjoying your new stage in life. With bankruptcy, you eliminate most types of debt, enabling you to meet financial goals upon retirement. Plus:

 

• Upon filing your petition, the automatic stay in bankruptcy goes into effect. Creditors are prohibited from contacting you, filing a collection lawsuit, garnishing your wages, or placing liens on property.
• A lender can request that the court lift the automatic stay, allowing it to proceed with foreclosure. However, there will be a delay that may enable you to catch up with mortgage payments.
• If you stay current on your mortgage during the duration of a Chapter 13 case, you can wipe out late fees and arrearages via your 13 debt repayment plan.

 

Steps in a Bankruptcy Case

There are three phases of a bankruptcy proceeding, starting with the preparations that must begin months before you start your case. You are required to complete a credit counseling course within 180 days prior to filing for bankruptcy. At the early stages of the process, you will need to determine whether Chapter 7 or Chapter 13 is the right fit. You can count on a bankruptcy lawyer in Georgia to advise you on options and the eligibility criteria. Plus, your attorney will handle such tasks as:

 

• Helping you gather and organize important financial documents ___;
• Preparing and filing the bankruptcy petition, along with all schedules;
• Assisting you with applying and understanding exemptions for Chapter 7, including your retirement savings covered by ERISA;
• Guiding you in developing a Chapter 13 debt repayment plan that will be confirmed by the court and accepted by creditors;
• Advocating on your behalf during the mandatory meeting of creditors, during which you will be asked questions about your bankruptcy petition and finances; and,
• Wrapping up all legal requirements for bankruptcy and obtaining the final discharge order.

 

Your Credit After Bankruptcy

A potential drawback for bankruptcy is that your credit score will drop. Still, you should review your outlook if you did not file. It is likely that your credit was suffering before you started considering bankruptcy to solve debt struggles, and it will continue to do so. 

 

Another concern is that the case will be on your credit report for 10 years after a Chapter 7 case and 7 years after Chapter 13. However, when you review the amount of time it would take to get current on bills and pay off debt, it may be decades before you have a clean slate. You do not want debt problems following you into retirement, so getting a fresh start with Chapter 7 or Chapter 13 may be the right decision.

 

Trust a Georgia Bankruptcy Attorney to Guide You

In addition to protecting your Golden Years through bankruptcy, there are many other factors that retirees must understand before making important decisions regarding the future. For guidance on how the laws affect your circumstances, please contact Morgan & Morgan, Attorneys at Law, P.C. to speak to a member of our team. We can set up a free consultation at our offices in Athens, GA to review your details and discuss options.