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What if Older Adults Just Stopped Paying Their Debt?

By Andrew Lu | Last updated on

The honorable move for a debtor is to pay off all the debt they gathered. But while this may be the honorable move, paying off your debt isn't always the best move (like in some short sales/foreclosures).

This is especially true for older Americans who have the option of filing bankruptcy. This applies only if the senior citizens can withstand the hit to their credit score, The Wall Street Journal reports.

Example of Older Adults Filing Bankruptcy Instead of Paying Debts

A Kansas couple was saddled with six-figure credit card debt on 13 different cards, reports The Journal. The husband was diagnosed with Alzheimer's and could not continue working full-time.

Faced with mounting debt and an inability to pay, the wife took on an additional evening cleaning job and launched an Avon business. The husband continued working 30 hours per week despite his illness, and they were able to work on repaying their debt. Typically debt is repaid in monthly payments, but this can have interest rates.

The couple may have been able to seek debt relief. Often you can discharge debt much more easily and without the need to take on additional jobs. This may have been the outcome had they just filed for bankruptcy.

When Is Bankruptcy Better Than Paying Debt Collectors?

Given the couple's age, experts say that they should have explored filing for bankruptcy, reports the Journal. That's because couples have less to worry about if they:

  • Are retiring soon or already are retirees
  • Have completed all their mortgage payments
  • Can survive a credit score plunge following bankruptcy
  • Have social security benefits (this asset is exempt from bankruptcy and can’t be taken away in bankruptcy)
  • Have retirement accounts

These factors can depend on the types of debt, such as personal loans or the policies of your credit card companies. But generally, borrowers can file for a Chapter 7 or Chapter 13 bankruptcy.

Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy for Older Adults

With Chapter 7 bankruptcy, an individual can discharge the debt and receive a fresh start. This is called debt forgiveness.

In return, some of the debtor's property is gathered and sold off to help repay the debt. In contrast, a Chapter 13 bankruptcy simply reorganizes your debt and creates a repayment plan.

You do not have to liquidate your assets with a Chapter 13 bankruptcy, but you also don't immediately discharge your debt either.

It was reported that the Kansas couple was offered bankruptcy as a solution, but they chose not to take that route. The couple felt responsible for their debt, and for that, they were named "Clients of the Year" by the National Foundation for Credit Counseling.

There are many different types of bankruptcy and paths to debt settlement, such as debt consolidation or debt management. You can work with a bankruptcy attorney if the debt collection agency is harassing you or you aren’t sure how to start the path to becoming debt free.

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