First Retirement, Then Bankruptcy

RetirementUnder current bankruptcy law and the exemptions available in the state of Texas, filing bankruptcy after retiring makes a lot of sense.  For most people retirement results in a reduction in monthly income.  Social Security benefits and retirement income seldom provide the same income that was received while working.  As a result, a retiree may not be able to afford to continue paying creditors that he paid before retiring.  Fortunately, a debtor who was not eligible for Chapter 7 discharge before retirement may be eligible afterwards.

Money in most types of retirement accounts and Social Security income are exempt property, so the trustee may not be able to seize these assets after filing bankruptcy.  Chapter 7 bankruptcy cases last three to four months, and at the end most types of debt can be discharged without payment.  Filing bankruptcy will adversely affect the filer’s credit score for a few years, but a recent retiree may have no need for credit.  If the debtor’s house is paid off (or they are renting) and they have a vehicle that is paid off and working well, then they may not need to finance the purchase of property for several years, if ever.

As an alternative to bankruptcy, retirees may also just ignore the creditors.  The statute of limitations in Texas for a creditor to sue is four years.  If the debtor can wait four years without being sued then the statute may run, and the debtor will have avoided paying the debt without filing bankruptcy.  Even if they are sued, if their only income is exempt (Social Security) and all assets are exempt, then there is little the creditor can do to collect the debt from them.  This is known as being “judgment proof.”  However, even retirees that are in this situation may want to consider filing bankruptcy simply to make the harassing phone calls and threatening letters stop.