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Palm Springs Law Blog

Wednesday, May 20, 2015

Are You "Judgment Proof" After You Retire?

The bankruptcy rate for Americans over age 55 is soaring. This age group now accounts for over 20% of all bankruptcies filed. Some analysts estimate that for every older person who files a bankruptcy petition, there are two more seniors who should, because of their dire financial straits.

What’s going on?  Retirees used to be seen as financially stable, kicking back on their savings and pensions, mortgages all paid off – enjoying their golden years. But not any more. Here are some of the major reasons why so many of our older generation have hit financial hard times:

 

          *  People are living longer, making seniors a much larger percentage of the

              population than in generations past.

          *  Retirement funds are inadequate to cover the living expenses of a longer life, and

              income has gone down in recent years – hit by the recession and lack of cost of

              living increases in social security and other pensions.

           * Property taxes and the cost of gas and ordinary consumer goods keep going up.

           * Medical expenses grow rapidly as the population ages. Medicare and other

              health care insurance plans do not begin to cover all costs of medical care for

              older people.

           * Seniors often have to rely on credit cards to pay their routine bills, burying them

              in debt they will never pay off.  This group now has more credit card debt

              than younger generations – debt that was often unthinkable for seniors only

              10 or 20 years ago.

           * Late payments on credit cards and other unsecured debts result in penalties and

              a huge increase in interest rates to over 30% interest in most cases. This makes

              even modest debts spiral rapidly out of control.

But wait…aren’t retirees “judgment proof?” Why should seniors worry about their debts, when, in most cases, creditors can’t touch their pensions or their homes during their lifetimes? If social security or IRA income each month can’t be levied by a creditor, grandma or grandpa can stop stressing, right? And if a creditor puts a lien on your aging mother’s home, what does it matter to her?  She will continue to live there until she dies, and after that, the creditor will get the money from the sale of her house.

“Judgment proof” is not the best way to describe the financial situation of many older Americans. The term is commonly used to mean that creditors can’t collect money from assets that are protected – pension, IRA, or social security income – or the home you live in, while you continue to live there. But a creditor can still file a lawsuit against you, and a court might agree that you owe the money and issue a judgment against you. So technically, virtually no one is “judgment proof.”

A better term is “collection proof” – because, even if you have a judgment against you, the creditor can’t collect it from your exempt assets. So if you have debts you can’t pay after you retire, or even if there is a judgment against you, why should you care? Here are two very important reasons:

 

       *  Creditors are shameless and relentless. They never give up trying to get money

           out of you. They call, send mail, and use every means to get your attention. To

           an older person who may be in declining health, or barely able to make ends

           meet every month, the constant harassment by creditors takes a heavy      emotional and physical toll.

       *  Creditors will often get judgments against you. You must respond to the Notice

           or Summons you receive from the court. If you do not take action, the court may

           very well authorize a levy or a freeze on your bank account. The county sheriff

           in your county is responsible for carrying out the levy, by ordering your bank to

           freeze your account and/or pay the debt out of your account. Neither the sheriff

          nor the bank may know that all of the funds in your account came from pensions

          or other exempt income. Once a freeze is in place, it can take weeks or months

         to get it reversed. In the meantime, your money is out of your reach.

Creditors can ruin a retiree’s life in ways that are far worse than their effect on younger people. Seniors have few chances to go back to work to pay off debt. There is little or no prospect of their paying off their debts in their lifetime. Credit card debt, in particular, grows rapidly, as retirees pay higher interest on interest over the years. A lien on a senior’s home to pay off that inflated debt after death often means there is little or nothing left to pass on to their children or grandchildren.

For retirees caught in the clutches of creditors, bankruptcy is often a good solution.

It usually wipes out credit card, medical and other unsecured debts, and makes it possible for most people to again manage their everyday living expenses within their income. A huge relief and peace of mind make a fresh start possible for seniors.




The lawyers at Heritage Legal, PC, assist clients throughout Palm Springs, Riverside County, San Diego County, San Bernardino County and the surrounding area.



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