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Illness, bad luck fuels rise in bankruptcy for seniors.

Byline: Scott Baughman

This is the second in a series of articles looking at how the aging of America's population is affecting the practice of law.

While it may be said that the greatest wealth is to live content with little, this idea may be small consolation to the growing population of elderly Americans filing for personal bankruptcy.

While part of the increase may be attributable to the aging of America's population, a study conducted from 2013 to 2016 which was published in August shows that the problem is perhaps further reaching.

"The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect," the authors wrote in "Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society."

The study, which was a collaborative effort of scholars from multiple states, found that Americans between the ages of 65 and 74 are three times as likely to file for bankruptcy as they were in 1991 and that one out of every seven people who filed for bankruptcy during the time of the study were age 65 or older.

Several North Carolina attorneys who work in personal bankruptcy law said it's usually not mismanagement or lack of effort that leads the elderly to file for bankruptcy, but more often just simply bad luck. Living on a fixed income, like retirement or Social Security, is a big part of the problem, especially when an unexpected expense arises.

"Many older clients are susceptible to bankruptcy because they are living on fixed incomes," said Damon Duncan of the Duncan Law Firm in Greensboro in an email. "This was especially noticeable in the most recent recession when people's retirement accounts took a significant hit due to the market."

Doug Wickham of Raleigh said one explanation for the increase in the elderly filing for bankruptcy is the abundant availability of credit, coupled with the fixed income.

"We have gone through a period where the institutions that sell money, the issuers of credit cards have been more aggressive," he said. "So, it is somewhat more likely that people whose income is interrupted are more likely to be carrying a bunch of debt."

Living on the edge

Duncan said that longer life expectancies have also led to more people living with chronic health conditions, leading to more bankruptcies.

"Someone with a chronic illness can easily be forced into bankruptcy if they don't have good health insurance," Duncan said. "There is no doubt that some people filing for bankruptcy are doing so because they have made poor financial decisions or have simply lived outside of their budget but the vast majority have lived, like most, with just a little bit of money in savings. When one of those life events happens, they just aren't in a position to handle it."

When it comes to advising attorneys about what they should do to best provide for their clients,

Billy Brewer of Janvier Law Firm in Raleigh said that it's important to really listen to older clients so they can be more open about the process and the attorney can make an accurate assessment.

"First thing I would do when you meet with a client, especially folks of that generation is to put them at ease about talking about bankruptcy," Brewer said. "Let them talk it out and tell their story, and then you can lay out their options."

Brewer said it's important not to push a bankruptcy on a client, even when that is their best option, but to present them with the facts and let them come to that conclusion on their own.

Wickham said he does a calculation with every client who contacts him considering bankruptcy.

"If you have spare money that will get the debt down to zero in two and a half or three years maximum, then in effect, you have a choice of what you want to do with that spare money," he said. "Either service the debt and get rid of it that way, or discharge it in bankruptcy."

Wickham said that unless a person is making payments to reduce the principal of the loan, it's usually smarter to accept bankruptcy.

The bank of Mom and Dad

Several attorneys said that clients should be advised to avoid seeking or giving financial help from or to family members.

"Sometimes you have to talk about other alternatives they are considering," Brewer said. "You need to suggest that perhaps your best option is to file for bankruptcy, get rid of this debt [rather than accept a loan from a child] because if you let your children help pay your creditors, it's not really helping you, it's helping your creditors."

Travis Sasser of Sasser Law Firm in Cary said familial loans going the other way can also be problematic.

"A significant cause is financial assistance to adult children," Sasser said. "Say no to financial assistance to children if a request is outside of their financial means."

While filing for bankruptcy is obviously never pleasant, Duncan said that there are laws in place in North Carolina which benefit the elderly. For starters, Social Security isn't factored into the amounts that bankruptcy petitioners must pay back to creditors.

"Social Security income does not count towards the means test and is not traditionally considered as a part of someone's disposable income," Duncan said. He pointed to other advantages in the state's bankruptcy code.

"In North Carolina, a widowed spouse has a homestead exemption, which is used to protect equity in a house of $60,000 instead of the typical $35,000," he said.

Brewer said that depending on the type of bankruptcy being filed, it's also often hard for creditors to go after elderly client's retirement benefits.

While the decision to file is difficult for anyone, Sasser said it can be especially tough for older clients who feel they have been fiscally responsible their entire lives, only to have things pile up on them late in life.

"For many elderly persons who have responsibly paid their bills their entire life, default or bankruptcy seems unthinkable even though their budget is not sustainable if the debt continues to be serviced," Sasser said.

But, despite the stigma, for many it's worth it, Brewer said, not just because it's legally necessary, but because it gives people closure.

"I think one of the biggest things filing for bankruptcy can do is remove the stress in order to make those older clients live better, healthier and longer lives," he said.

Follow Matthew Chaney on Twitter @NCLWChaney

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Author:Baughman, Scott
Publication:North Carolina Lawyers Weekly
Date:Nov 1, 2018
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