Bankruptcy and ‘Boomerang’ Kids

When times are tough it is natural that we turn to those closest to us when we need help.  Society as a whole is seeing large numbers of ‘boomerang’ kids – adult children who move back home after college or when dealing with a financial crisis.  Most of the parents I meet with are happy to help and will do anything that can to help their children.  And that is where the problems lies  – they will do anything to help out.

Often this means that the parents carry the heavy load of supporting not only themselves but their adult children and often their grandchildren.  When people move back in with their parents they often see their parents like they did when they were kids.  They see them as the providers and just assume that their parents are in the financial position to take care of them.  However, many of these parents don’t have the resources to care for a suddenly larger household and compensate by turning to credit cards.

This can result in huge amounts of debt for people who’s sole source of income is Social Security and a pension.  All of this equates to serious financial trouble and stress.  This leads to the question, if you are retired, living on Social Security, and have a large amount of debt, does it make sense to file for bankruptcy?  Here are a couple of things to consider:

Sometimes Bankruptcy is Not Necessary

Even is you have a lot of debt you need to ask yourself what would really happen if you stopped paying your creditors.  For instance, if you stopped paying your house payment or your car payment the house will be foreclosed on and the car repossessed.  You probably don’t want that so it is a good idea to keep paying those.

However if you stop paying your credit cards you will likely receive some collection phone calls and maybe you will be sued on the debt.  In my experience most credit card companies will try and collect a debt for 90 -120 days and then sell it to a third party debt buyer.  The purchaser of the debt may or may not sue you.  The reason why this is important is because with unsecured debts like credit cards unless the creditor has sued you and obtained a judgment there isn’t a whole lot they can do to you other than be annoying and damage your credit score.

And even if a creditor obtains a judgment against you if your sole source of income is Social Security they can’t garnish that anyway.  So your creditor may be able to get a judgment but likely won’t be able to do much with it.  If this is your situation you should consult with a bankruptcy lawyer to evaluate the specifics of your case and what the best route to go is.

Chapter 7 is Usually Available if you are Retired

If you need to file bankruptcy during your retirement years one advantage you will likely have is that you will qualify for a chapter 7 bankruptcy pretty easily.  In order to qualify for a chapter 7 bankruptcy case your income must be at or below the typical income for a family of your size in your state.  However, in calculating what your income you are not required to include your Social Security income into the equation.  Further, you will be able to count your adult children (and their children) in the calculation of your total household size.  For most this means that it is very easy to qualify for a chapter 7 bankruptcy filing.

Before making any decisions on whether to file bankruptcy or not it is important to meet with a qualified bankruptcy attorney.  They can help you in making the right decision for your situation.