Rising Bankruptcy Rates Are Threatening America’s Seniors

A new study has found that bankruptcy rates for Americans 65 and older have grown fivefold since 1991—and indicates that a fraying social safety net is to blame.

What happens when your debts pile up so high that you’re practically buried underneath them? Well, unless you win the lottery or have a rich relative die and leave you a pile of cash, you’ll probably have to file for bankruptcy. This can help you discharge some or all of your outstanding debts, at the cost of absolutely pile-driving your credit into the ground.

Some people file for bankruptcy because they have been irresponsible with their money, but many others file for it for reasons almost entirely out of their control. An unexpected health crisis or a sudden loss of a job—especially for older workers, who have trouble getting rehired—can leave people racking up debt after debt and scrambling to keep up with their bills.

According to a new study from the Consumer Bankruptcy Project, America’s seniors are filing for bankruptcy at record high rates. After decades of public policy decisions that shifted responsibility for retirement costs from the government and corporations onto the shoulders of private citizens, it appears that many seniors can’t keep up.

Seniors are filing for bankruptcy at record rates.

Through the Consumer Bankruptcy Project, researchers Deborah Thorne, Pamela Foohey, Robert M. Lawless, and Katherine M. Porter analyzed data from bankruptcy court records and written questionnaires in order to create an overall snapshot of bankruptcy filings in the United States over the past two and a half decades Their results unearthed some disturbing trends.

According to their report, the rate at which Americans ages 65-74 file for bankruptcy has doubled, while the rate for seniors aged 75 and above has tripled. The rates at which bankruptcy effects older populations becomes even more pronounced when compared to other age groups who also file.

From the report (emphasis ours):

One in seven bankruptcy filers is of retirement age, 65 years or over. This is nearly a five-fold increase over just two and a half decades. This is a notable demographic shift.

Within the oldest cohort, those age 75 and over, there has been a near ten-fold increase since 1991. In 1991, this group constituted only 0.3 percent of filers, as compared to 3.3 percent now.

Of course, all these numbers can simply be explained by the fact that more and more Baby Boomers are reaching retirement age, right? Wrong. The report notes that older Americans comprised 2.1 of bankruptcies in 1991, while they made up 12.2 percent as of 2016.  “Even adjusting for increased numbers of older Americans,” they note, “older people are still more likely to seek protection in bankruptcy courts than in prior decades.“

Loss of income, debt collectors, and medical costs.

Seven out of 10 people who responded to the survey named a “loss of income” as either a major or the primary factor driving them into bankruptcy. Adding to these difficulties was the stressed caused by dealing with debt collectors, which 71.6 percent of responders also listed as a major or primary factor.

Said one respondent:

All things went up in price. Retirement never went up. Had a part time job that was helping to meet monthly payments. House payment kept going up. Was fired from my part time job that I had for over 10 years without any warning. Being 67 and having back problems, not many people will hire you even as part time worker

And then there are medical costs, which six out of 10 people named as a major source of financial strain contributing to bankruptcy. 40 percent of responders also noted that they suffered a loss of income driven by missing work for medical reasons.

From another response to the researchers’ questionnaire:

My bankruptcy started with back surgery I had in 2011. I had several medical tests that my insurance did not cover. This caused me to fall behind in my medical payments. The next thing I knew, the bills began piling up. I got to the point I owed more than I was making on Social Security. To get out from under these medical bills I had to file bankruptcy.

I went without medical and dental. Even with Medicare and supplemental dental insurance, the co-pays were more than we could afford. I still need dental work. It will have to wait until I can save up the money. Our income is just over the limit to get [governmental] help.

And one cannot forget the shrinking of the social safety net, with Social Security benefits that have not kept up with the cost of living or medical care and a shift from defined benefit pension plans to 401(k)s that leave plan-holders vulnerable to a far greater deal of risk.

“With the 401(k)-style of savings, payout during retirement is not defined or predictable,” states the report, adding that “employees bear all of the market risks, and returns depend on employees’ investment skills.”

What can you do to avoid bankruptcy post-retirement?

There isn’t any shame in having to file for bankruptcy. As we noted above (and the researchers stress continuously in their report), many people go bankrupt for reasons entirely beyond their control. Still, you’ll want to avoid filing for bankruptcy if you can.

The first thing that you can do is to start saving. This means both putting money into your 401(k) or another retirement plan—or starting a retirement plan if you haven’t already—as well as building up cash savings to deal with emergencies.

Did you know that over 60 percent of Americans don’t have enough money in savings to cover a $1,000 emergency? It’s situations like this that can force people to the brink of financial ruin when they encounter a sudden medical issue or other unforeseen expense.

Start with building up a $1,000 emergency fund that you can keep in cash, on a prepaid debit card, or somewhere else you can easily access. Just make sure that you can’t access it too easily—to ward off to temptation. Keep building from there until you have six months worth of living expenses saved up and ready for use.

When it comes to dealing with financial emergencies, those with bad credit have it even worse. When forced into a financial corner, they have to turn to predatory no credit check loans like payday loans, cash advances, or title loans just to get by. Of course, those loans can easily trap them in a dangerous cycle of debt, turning a money emergency into a full-blown financial crisis.

So if you have bad credit, build it back up! The best thing you can is to pay down your debts and to start paying all of your bills on time. Those two factors make 65 percent of your total credit score. Get them right and your score will follow.

And lastly, paying down your debts isn’t just good for your credit score, it’s good for your finances period. Make a plan to pay down your debt—starting with a tight budget—and get to work. We suggest either the Debt Snowball or the Debt Avalanche methods, depending on your flavor of fiscal responsibility. You might even consider taking on a second job or a side gig to bring in some extra debt-slaying income!

There is no way to completely protect yourself against bankruptcy. Life is too unpredictable for that. But while society sets about fixing the macro issues laid out in the  Consumer Bankruptcy Project’s report—a process we encourage you to be a part of—there are plenty of things you can do on the micro level to fix the issues with your own finances.

To learn more about taking control of your financial future, check out these related posts and articles from OppLoans:

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