After being in the workforce for decades, most older Americans look forward to retirement. It’s a time to relax, travel and spend time with family.
Unfortunately, the golden years also bring more health issues and healthcare costs for many people. And with a limited income, those medical expenses soon become an overwhelming financial burden. Will you need to work longer to get out of debt?
Indiana’s bankruptcy exemptions
Under federal law, retirement accounts, including 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans, are protected from creditors during bankruptcy. In addition, traditional and Roth IRAs are protected up to a limit of $1,512,350 per person.
However, any funds you have in checking, savings, investment accounts and other non-retirement accounts can be used to satisfy creditors.
The monthly income you receive from your retirement accounts can be used in bankruptcy proceedings. Chapter 7 bankruptcy allows for the discharge of certain debts without repayment, but you must meet the means test, which determines the individual’s ability to repay their debt. Monthly payments from a retirement account get figured into that test. For one person in Indiana, the annual income threshold is $57,965.
If you are not eligible to file for Chapter 7 bankruptcy, you will need to file for Chapter 13 instead. This type of bankruptcy enables people to develop a plan to repay all or part of their debts over a three to five-year period.
It is very important to note that in both Chapter 7 and Chapter 13, the individual’s social security benefits are also exempt in bankruptcy proceedings as long as they are kept separate from other monies.
Facing massive debt is stressful for everyone. It can be even more so if you’re retired. Fortunately, you don’t have to go through it alone. Working with someone who understands the nuances of filing for bankruptcy can help you decide which option is best for your situation.