With the uncertainty of the viability of Social Security and the expense of medical treatments and long-term care, one would think that those who are getting on in years would make it a priority to pay off their mortgages and credit card debts. Unfortunately, according to a recent survey, this is not the case.
The recently released Survey of Consumer Finances from the Federal Reserve revealed that 54 percent of those entering retirement and 41 percent of those 65-74 years old had a mortgage on their homes during 2010. Although this is not completely surprising, the amount that is owed on the home is. According to the survey, the median amount owed was $97,000 for pre-retirees and $70,000 for those who just retired.
Experts say that the reason for this debt among retirees was the recent housing bubble. During this time, banks and financial institutions encouraged homeowners to use their home as a cash machine by taking out second mortgages and home equity loans. As a result, many were duped into taking on more debt in their later working years, causing them to enter retirement with large amounts of debt.
Besides mortgage debt, the survey also found that those around retirement age also carried significant amounts of credit card debt. According to the data, about 41 percent of pre-retirees and 32 percent of new retirees had a median balance of $2,200 in credit card debt in 2012. Although this is a 16 percent decrease from 2008, the survey showed that the elderly are increasingly relying on credit cards, which carry high interest rates, to manage expenses such as medical bills, home repairs and car expenses.
Bankruptcy can help
For those in or about to enter retirement that are struggling with credit card or medical debt, bankruptcy can offer relief. Once the bankruptcy process is completed, the court will grant a discharge of this type of debt, which eliminates the obligation to repay the debt.
Unfortunately, mortgages and other secured debt are typically not dischargeable in bankruptcy. However, since bankruptcy can eliminate the obligation to pay credit card debt and medical bills, it can significantly free up the financial resources available, allowing the homeowner to stay current on his or her mortgage.
Homeowners who are facing foreclosure can also benefit from Chapter 13 bankruptcy. This type of bankruptcy can stop foreclosure proceedings and allow the homeowner to stay in his or her home while catching up on delinquent payments over a three- to five-year period. Once this period is over, the homeowner emerges from bankruptcy current on his or her mortgage and free of credit card debt, medical bills and other unsecured debt.
If you are considering bankruptcy as a solution to your debt problem, it is important to first consult with an experienced bankruptcy attorney. An attorney can advise you of all your options and recommend one that would be best for your particular situation.