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Final Strategic Considerations for Oregon Seniors Considering Bankruptcy

Sept. 19, 2013

This is the last of our series of blog posts about some special legal and practical concerns of older Oregonians. We invite you to see our earlier ones on debt, income, and asset issues. Plus the most recent one was on strategies for seniors (and others) who are—or think they are— “judgment-proof.”

We finish today with three other issues that can affect how you think about and deal with your debts:

1) Benefitting Your Survivors and Heirs

Your debts can affect not only you but also those who survive you. These folks will not be legally liable for your debts (unless they co-signed one or are legally involved is some other way). However, if you have a lot of debts when you die your survivors could well not receive from you what you would have liked to give them. This could be true even if you have a will stating who is to receive your possessions.

The reason is that in most situations the debts that you owe when you die have to be paid out of your possessions before they can be passed on to the people you designate. There are exceptions, such as life insurance, which the beneficiary receives regardless of your debts. But most of your possessions would not go your survivors until your debts are first paid. This applies even to items that you specifically stated are to go to specific individuals.

You may figure this isn’t a big deal for you because you have nothing very valuable, nothing that the creditors would want. But the problem is that if you die with debts, whatever you own, even if it has modest marketable value, has to be sold to pay those debts. So if you have anything that has some sentimental value for you and for family or friends, it would likely have to be sold to pay your creditors. The fact that it would likely be sold for very little money just adds insult to this injury.

Also, even if you have no assets whatsoever, less scrupulous creditors and collection agents occasionally badger survivors to make them pay the debts after a person dies, either trying to make them think that they are legally obligated or by guilt-tripping them into paying.

All these problems can be avoided if you discharge (legally write off) your debts in bankruptcy now. In almost all cases, all of your possessions will be protected from your creditors now. Then, besides living debt-free yourself, you don’t have to worry about your survivors not receiving what you want them to receive out of your possessions, or about them being hounded about your debts.

2) Attitudes about Bankruptcy

People in their 50s, 60s and beyond tend to have a greater reluctance to filing bankruptcy. This may be especially true if you have done relatively well financially through most of your life. Because of a lifetime of high personal expectations and values about paying one’s obligations, filing bankruptcy may feel like an admission of failure. The entire concept of bankruptcy may well have a stronger moral element for you than for younger people—you may feel that it’s just wrong.

Everybody who is in serious financial trouble contemplating bankruptcy does need to make a moral choice about it. We propose that it is morally right and emotionally healthy to acknowledge that the values at issue need to be weighed against each other. The value of paying your creditors is not absolute, but can be outweighed by certain other values. For example, paying creditors may well not be the right thing to do if it means not being able to afford healthy food and/or to adequately heat your home in the winter, to the degree that you’d be jeopardizing your health. Is it right to deeply hurt your quality of life and emotional health in your “golden years” with worry and the constant lack of any spending money?

As we said when we introduced this series of blog posts, a study sponsored by the AAPR’s Public Policy Institute called Generations of Struggle said that the “rate of bankruptcy filings among those ages 65 or older has more than doubled since 1991.” And for people aged 75-84, the bankruptcy filing rate has increased more than fourfold during this period. We don’t suggest that you consider filing bankruptcy because “everybody else is doing it.” Instead, these statistics reflect that there are forces financially harming you that are outside your control—especially during the past five years or so—and that the morally and rationally right way to respond is to use legally appropriate tools to help your situation.

3) Health and Life Expectancy

As frustrating as it can be to admit, as we grow older the risks of having to confront serious medical issues increases. And end-of-life issues have to be calculated into decisions.

In the context of debts and bankruptcy, these can factor in countless ways.

For example, it may make sense to file a bankruptcy case to clear away debts now because of an anticipated increase in medical expenses. But sometimes it instead makes sense to delay filing until after a chunk of upcoming medical expenses are incurred.

It may be worth filing bankruptcy on a relatively moderate amount of debt because of the high impact of that debt on your quality of life. For physical and emotional health reasons it may be very important for you to be able to stay in your home, or to keep your vehicle to go to doctor appointments and to visit family and friends.

A Chapter 13 payment plan may make more sense than otherwise because of your but steady income. But it may not because of the higher risk of erratic medical expenses.

What’s most important is to work with a very conscientious attorney, one who is sensitive to how these and similar issues can affect your particular case, how they can change how your options should be weighed. But it’s also important for you to express your own about these kinds of issues to your attorney—he or she may well not be aware of them unless you voice them. Even a thorough attorney is not a mind-reader! For example, a Chapter 13 case may be the best way to go for all the known reasons, but it may not be if you are expecting that an ill sibling will be moving in with you soon. Be sure to do your part by being up front and thorough yourself, voicing your concerns and asking questions so that you understand the options.

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