A study published in the September 2010 issue of the American Bankruptcy Institute’s ABI Journal shows that a disproportionate percentage of recent bankruptcy petitioners have come from the Baby Boom generation. The study, “Aging and Bankruptcy Revisited,” was based on data from as far back as 1994, and found that 42 percent of individual bankruptcy filers in 2007 were between the ages of 45 and 64. The growth in bankruptcy applicants over 55 is outpacing the aging of the American population, with an increase of 61 percent over a five-year period starting in 2002.
There are several reasons why consumers in this age group have increasingly turned to bankruptcy as the foundation of a personalized debt relief strategy, but one looms large. “The recent housing crisis has worsened the already precarious financial condition of many older Americans,” study authors John Golmant and James A. Woods of the Administrative Office of the U.S. Courts wrote. The study revealed that states where the home price index decreased had a 118 percent increase in bankruptcy filings.
States such as Arizona, Nevada and Florida were particularly hard hit by the housing bubble’s burst, which left many homeowners with zero or negative home equity and no debt cushion. In the Phoenix metropolitan area, bankruptcy filings have continued to increase since the study period. The Arizona Republic recently reported that local filings reversed a four-month downward trend with an August increase, and the U.S. Bankruptcy Court in Arizona expects 2010 bankruptcies to show a 20 percent increase over last year.
Taking Charge of Overwhelming Debt
Other financial factors have led Baby Boomers to reconsider their personal situations and take initiative to enhance their long-term financial security. Job losses and downsizing have forced many to accept lengthy periods of unemployment or significantly reduced incomes. A career-related loss of health insurance or one spouse’s life insurance can create serious challenges during a serious illness or after an unexpected death. Steep increases in college tuition have placed additional burdens on aging parents.
The bankruptcy process can provide major relief to couples and individuals who find themselves surrounded by debt on every front. By filing for bankruptcy, you can put an immediate stop to foreclosure, repossession and debt collector harassment via an automatic stay. Just as important, you can do so while retaining possession of certain assets.
Holding on to Crucial Assets
Bankruptcy does not mean that you have to forfeit everything you own to satisfy creditors. Certain assets are protected, including the most important property that many people own, the equity in their home. In Arizona, a homeowner can retain $150,000 of the value of a primary residence.
But the list of exempted property also includes home furnishings, electronics, appliances, books and motor vehicles up to a specific level of value. One of the most important parts of the bankruptcy process is a thorough review of your assets, obligations and income to assess your eligibility for the full range of bankruptcy protections.
Flexibility via Chapter 7 or Chapter 13
One basic distinction in all consumer bankruptcies is whether the petitioner qualifies for a Chapter 7 (liquidation) bankruptcy, which discharges most debts, or a Chapter 13 bankruptcy, which allows you to create a three- to five-year plan to pay down non-housing related secured debt and discharge a portion or all of your unsecured debt.
Eligibility lies in a variety of relevant factors, including recent income, current expenses, utility payments, mortgage payments and other monthly loan obligations. At a first consultation with an experienced bankruptcy lawyer, you can find immediate answers about your options.
A Bankruptcy Attorney Can Help You Find Your Financial Footing
While bankruptcy is a relatively straightforward and predictable process for those who are eligible, it is a decision that few people take lightly. Before settling on any comprehensive debt relief strategy, you must take an honest look at a variety of factors, including earnings prospects, spending habits, lifestyle choices and the effect on your future credit rating.
But that is no reason to shy away from the real solutions provided by bankruptcy and other options such as debt settlement, short sales and loan modification. By working closely with a lawyer who is ready to explain the advantages and pitfalls of different paths to financial relief, clients can focus on improving their circumstances at any stage of life.