This is the second in a series of articles looking at how the aging of America’s population is affecting the practice of law.
While it may be said that the greatest wealth is to live content with little, this idea may be small consolation to the growing population of elderly Americans filing for personal bankruptcy.
While part of the increase may be attributable to the aging of America’s population, a study conducted from 2013 to 2016 which was published in August shows that the problem is perhaps further reaching.
“The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect,” the authors wrote in “Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society.
The study, which was a collaborative effort of scholars from multiple states, found that Americans between the ages of 65 and 74 are three times as likely to file for bankruptcy as they were in 1991 and that one out of every seven people who filed for bankruptcy during the time of the study were age 65 or older.
Several South Carolina attorneys who work in personal bankruptcy law said that it’s usually not mismanagement or lack of effort that leads the elderly to file for bankruptcy, but more often just simply bad luck. Living on a fixed income source, like retirement or Social Security, is a big part of the problem, especially when an unexpected expense arises.
“It could be because they’re providing for somebody else,” said Jane Downey of Moore Taylor Law Firm in Columbia. “When you look at their budget, the medicine they’re on can be very expensive.”
‘Like a hamster on a wheel’
Russell DeMott of Summerville said that oftentimes he deals with clients who accumulated debts while working late into their 60s before having a sudden life event tip them over the edge.
“They often have credit card debt, which they’re able to make the minimum payments on and then some health problem or job loss occurs and it’s like a hamster on a wheel and they realize there’s no way they’ll ever pay this back,” DeMott said. “And that’s when they come see me and we discuss their options.”
Damon Duncan of Duncan Law in Greensboro, North Carolina, said that longer life expectancies have led to more people living with chronic health conditions, leading to more bankruptcies.
“Someone with a chronic illness can easily be forced into bankruptcy if they don’t have good health insurance,” Duncan said in an email. “There is no doubt that some people filing for bankruptcy are doing so because they have made poor financial decisions or have simply lived outside of their budget … but the vast majority have lived, like most, with just a little bit of money in savings. When one of those life events happens, they just aren’t in a position to handle it.”
When it comes to advising attorneys about what they should do to best provide for their clients, both DeMott and Downey said it’s important to listen and suss out what their clients’ needs are.
“I think the best advice you can give is to accurately assess the debt and the clients’ ability to pay it off,” DeMott said. “If they can’t do that and they’re having to cut back on necessities, having to work jobs that they’re not physically able to do, they’re not able to get the food or medicine that they need, or they can’t afford to travel ever to see family or friends, then those are warning signs they need to think about bankruptcy options.”
Downey said the first question she asks clients is what type of debt they have. If the debt is unsecured, and the client doesn’t have many assets, she said they might be judgment proof, meaning it won’t make a difference if they file for bankruptcy or not. However, she said that if she can tell that the client’s health is suffering because of the stress of dealing with creditors, it’s sometimes worth it to file anyways.
“I might say it doesn’t matter financially, but to get the stress off your back, I might advise somebody to file for bankruptcy,” Downey said.
If an attorney thinks it’s worth it to file, they should also consider what type of bankruptcy is best for their client.
“In Chapter 13, when you determine someone’s plan payment, or the amount that they will pay back, you don’t have to factor in Social Security,” Downey said. “For that reason, people will often file Chapter 13 to avoid applying Social Security income to pay creditors.”
The fresh start it’s meant to be
Attorneys agreed that since the Great Recession, bankruptcy has become more and more common among every age group. But Duncan said the recession hit the elderly population especially hard because many of them rely on income from retirement benefits which shrunk when the market crashed.
“Just because their income has decreased, it does not mean their expenses have necessarily decreased as well,” he said.
But an unexpected consequence of the increase in bankruptcies, according to Downey, is that some of the stigma of filing for bankruptcy has gone away.
“I’ve been practicing for 28 years, and when I first started, it was like wearing a scarlet ‘A,’ nobody wanted to touch you with a ten-foot pole,” she said. “After [the recession], it’s turned so that it may just be that you’re a victim of bad circumstances … People are more forgiving that something has caused you to file for bankruptcy, and they see it as the fresh start it was meant to be.”
While filing for bankruptcy is obviously never pleasant, for many, it is necessary. Downey said it’s important that clients know that they are not alone and that filing isn’t an immoral act.
DeMott said that attorneys should not hesitate to offer bankruptcy as a way out for clients who are bleeding retirement income to meet minimum payments.
“It’s one of the saddest things I see. People delay getting advice on a financial situation and they wait until they have drained down an IRA, their 401(k), or other retirement assets to service an unserviceable debt, or to make the minimum payments on a consumer debt,” he said. “You need to get a consultation before it comes to that.”
Follow Matthew Chaney on Twitter @SCLWChaney