This guest post by Eric Olsen is a great example that not all debt experts need to agree all the time. Eric presents a very valid point of view and mine is slightly different. Eric describes a situation where seniors may consider it unnecessary to file bankruptcy. In my experience, bankruptcy in similar situations can provide emotional relief knowing the debt is legally closed behind you. But ultimately only the individual can decide which approach is right for them.
By Eric Olsen, Executive Director, HELPS Nonprofit Law Firm
With nearly half of America’s seniors with income within 200% of the poverty line and retiring with more debt than ever before, bankruptcy is a topic in many senior’s homes.
It is a fact of life that people look to solve problems within the area of their expertise. For example, if you have chronic back pain, if you go to a Chiropractor you will be treated with manipulations or “adjustments” to the spine. A Physician, an MD, perhaps an orthopedic surgeon, might recommend the same person receive back surgery. A naturopathic doctor, who also went to medical school, will recommend less invasive remedies, possibly with injections , diet or “naturopathic” treatments. If you live in China, or even in America, a doctor who practices acupuncture will recommend acupuncture to treat your chronic pain. Each one will swear by his or her solution to your problem.
What this means is, if a senior with old debt they can’t afford to pay goes to a bankruptcy attorney, bankruptcy will likely be the answer they are given. The same way each of the medical providers above will give their remedy as the answer to your bad back- it’s what they know. What is important is that there are often other answers, not understood by the persons making the recommendation, whether it be medical or legal advice, and sometimes those other answers might be a better way to proceed.
I have been an attorney for nearly 40 years. The law firm which I founded and was the senior partner, filed nearly 50,000 bankruptcies over several decades. I am now the Executive Director of HELPS, a nonprofit law firm that helps seniors who owe old debt they can’t afford to pay. The seniors we help almost always have no need for a bankruptcy.
There is one very important basic fact that seniors need to understand. That is, that their social security, pensions, disability, and any VA benefits are protected by federal law, can’t be taken from them and doesn’t need to be used to pay old debt they can’t afford to pay. Almost as important is the fact that there is a law that provides a means that unwanted contact from debt collectors can be stopped. Sometimes seniors are advised to file a bankruptcy simply as a means to stop unwanted collector contact. Sometimes I have said that filing a bankruptcy for a senior with protected income is like using a sledge hammer as a fly swatter. Sure, both kill the fly but why use a sledge hammer when a fly swatter will do the same, with far less effort and damage?
Sometimes there are other reasons, aside from protected income, why a bankruptcy for a senior or disabled person might not be a good option. For example, some seniors have enough equity in a home where a bankruptcy trustee might claim an interest and try to list and sell the home.
I witnessed this just the other day. An elderly widow was advised to file a chapter 7 bankruptcy. It turned out she had equity over the exemption. The chapter 7 trustee advised he was going to list the home for sale. The attorney asked about converting the case to a chapter 13 bankruptcy which would allow her to pay the creditors over five years and would stop the sale. The only problem was her income was insufficient to make a large enough payment to her creditors. She was faced with no other option. Her home would be listed for sale by the bankruptcy trustee. Of course, she would keep her state homestead exemption. But she didn’t care about that, she wanted to live in the home.
I have only seen an unsecured judgment creditor proceed against a home with excess equity over a homestead exemption on one or two occasions in nearly forty years of practice. It just doesn’t happen. And if it does, there is solution. The judgment becomes a lien on real property in most states and simply sits there until the home is sold or transferred. Filing a bankruptcy and risking a trustee sale of the home where there is equity over the state homestead exemption doesn’t make sense. Or putting a senior in poverty with a chapter 13 payment they can’t afford.
Sometimes seniors have other assets that exceed available bankruptcy exemptions. Assets that a chapter 7 trustee would go after if a bankruptcy were filed, but a typical unsecured judgment creditor would never touch. For example a free and clear car worth over the bankruptcy exemption. Maybe an interest in other property no exempt. In real life, unsecured judgment holders virtually never seek execution of a judgment against nonexempt personal property. And if they attempt to do so, again, there are solutions.
Sometimes, seniors owe past due income taxes. The IRS does not, as a practice, garnish pensions. Occasionally, the IRS will garnish 15% of social security benefits. Lower income seniors who owe past due income taxes can often easily obtain uncollectable status with the IRS and stop any garnishment of social security. States cannot take social security or retirement monies for past state taxes. Most seniors are not aware of this, and most state tax collectors do not inform them of this fact.
It is easy to see the dilemma bankruptcy attorneys sometimes face advising the elderly and disabled who seek them out. They want to help. They know the collector harassment seniors sometimes go through. Bankruptcy can be a solution for a senior, however, for many- it just doesn’t make sense, let alone is financially feasible.
Is there a solution to stop constant harassment by collectors? One solution is to send a “cease and desist” letter to a collector under the federal Fair Debt Collection Practices Act. This is a written notice sent by the debtor advising a collector to cease both written and phone contact regarding a debt. Templates are available on the internet or at our website www.helpsishere.org
While bankruptcy may be an option, it is often unnecessary and sometimes can actually be bad choice resulting in unwanted consequences.