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Seniors, generally defined as people age 65 or older, comprise a growing percentage of the U.S. population. According to the Administration on Aging, part of the U.S. Department of Health and Human Services, seniors accounted for 14.5 percent of the population in 2014. That percentage is expected to increase to 21.7 percent by 2040. A greater and greater number of people want to retire, or are no longer able to work, and must rely on various types of fixed income. Increased health care costs for the myriad medical issues that seniors face will become an increasingly pressing concern. While specific debts are not necessarily passed on to a person’s heirs, creditors can cause considerable havoc in a person’s estate. Seniors who find themselves in financial distress may find that bankruptcy offers some solutions. Many types of income that seniors receive are exempt from creditors both before and during a bankruptcy case, and many debts commonly associated with seniors are unsecured and therefore subject to discharge in bankruptcy.

Debtors filing for personal bankruptcy usually choose between Chapter 7 and Chapter 13. In a Chapter 7 case, a debtor’s non-exempt assets are liquidated to pay debts, and the court discharges most debts at the end of the case. A Chapter 13 case involves a repayment plan that lasts several years, followed by a discharge. While some debts are not subject to discharge, bankruptcy can result in having most of one’s unsecured debts wiped out.

A California debtor filing for bankruptcy has two options for claiming property as exempt under California law. The first system allows exemptions for seniors that include up to $175,000 of the equity in their residence, up to $2,300 in motor vehicles, and up to $6,075 in “jewelry, heirlooms, and works of art.” See Cal. Code Civ. P. §§ 704.010 et seq., 704.730. The second system does not include a specific homestead exemption but allows multiple other exemptions and a “wildcard” exemption for property valued up to $24,060. Cal. Code Civ. P. § 703.140.

Many types of income, including retirement and government benefits, are effectively exempt from creditors because of statutory provisions that prohibit alienating or assigning benefit payments to anyone other than the beneficiary. Social Security benefit payments, for example, are not “subject…to the operation of any bankruptcy or insolvency law.” 42 U.S.C. § 407(a). Benefits payable by the Veterans Administration are not subject “to attachment, levy, or seizure by or under any legal or equitable process whatever.” 38 U.S.C. § 5301(a)(1). Exceptions may apply, however, for certain debts, such as federal income tax.

The Employee Retirement Income Security Act (ERISA) protects the rights of employees and former employees in various employer-administered retirement plans. This includes anti-alienation provisions. 29 U.S.C. § 1056(d)(1). The bankruptcy statute passed by Congress in 2005 went further to protect retirement accounts. It amended the Bankruptcy Code to exempt most retirement plans, regardless of whether they are subject to ERISA. Pub. L. 109-8 § 224 (Apr. 20, 2005), 119 Stat. 62; 11 U.S.C. § 522(b)(3)(C).

Bankruptcy attorney Devin Sawdayi has represented clients in the Los Angeles area since 1997, guiding them through Chapter 7 and Chapter 13 bankruptcies and helping them rebuild their finances with dignity and respect. Contact us online or at (310) 475-9399 today to schedule a free and confidential consultation to discuss your case.

More Blog Posts:

California Bankruptcy and the Various Types of Personal Debt, Los Angeles Bankruptcy Lawyer Blawg, May 9, 2016

Medical Debt Remains a Major Factor in Personal Bankruptcy Filings, Los Angeles Bankruptcy Lawyer Blawg, April 30, 2016

Illness or Other Misfortune Often Leads to Bankruptcy, as Shown by a Los Angeles Chapter 13 Case, Los Angeles Bankruptcy Lawyer Blawg, June 25, 2013