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Bankruptcy or retirement savings - How baby boomers should select?

Written by Adrian Collins - Ms. Collins is an accomplished financial writer from Berkley. Ms. Collins is passionate about the written word and about everything related to debt. She writes full time for a number of financial sites and has debt consolidation companies.

    Financial crisis is something which may appear in anybody's life at any moment. When you still have a job, it may not be that difficult to manage unexpected financial needs. Post retirement, there may be much less flexiblility in dealing with day to day expenses, to say nothing of unexpected expenses. Living on a fixed income makes the the situation even more critical. With numerous debt obligations and lack of enough resources, it becomes actually difficult for the baby boomers to find a proper solution. In such a circumstance, legal experts advice to file bankruptcy. However, many people feel that using retirement savings is a better than filing bankruptcy as this will allow them to keep their credit score high. However, high credit scores are only important when you have to borrow money, and retirees should avoid borrowing money at all costs. The selection is confusing indeed for the retirees and should be based on a long term view and a plan to protect as much of your retirement savings as possible.


  Studies show that since 2002, the number of bankruptcy applicants aged more than 55 has increased by 61%. The significant growth has even surpassed the overall ageing percentage of the American population. This would seem to indicate that boomers are using bankruptcy as a tool in retirement. You do not have to look far to find statistics saying that boomers have not saved enough money for their retirment years. What follows here are the vital benefits that bankruptcy has to offer the baby boomer:

   1. It's possible to safeguard assets: Chapter 13 bankruptcy allows the applicant to keep valuable assets while wiping out most debt. The amount you pay generally depends on how much money you have coming in each month. For the repayment, it's essential to follow a court monitored repayment plan. The payment plan must not exceed the time frame of 3 to 5 years. Through Chapter 13 bankruptcy, it's even possible to get an exemption for the equity in your home, vehicles, home furnishings and other valuable objects. The amount of the exemptions are the same in a Chapter 7; however, if you have more equity in certain property that cannot all be exempted, Chapter 13 may allow you the option of keeping it.

   2. Credit counselling session makes it easier to decide:  The mandatory credit counselling session helps in guiding people properly. The counselling session (which can be done over the phone or on line) elucidates whether bankruptcy is essential or not, the consequences and the impact on credit history. After successful completion of the counseling, your attorney will decide whether you should file bankruptcy or not.The counseling session even helps debtors to understand properly the other available options to getting out of debt. Just because of this, the session is essential, especially for retirees who don't have many options left.

   3. Bankruptcy court treats retirement savings differently:  Retirement savings, including the 401K plan, pensions and IRA's are exempt in bankruptcy. If a debtor files for bankruptcy with retirement funds intact, then the filing will not affect those savings. So, the debts will be discharged (or wiped out) easily without hurting the retirement savings. Therefore, the question of using the retirement savings for debt payments is resolved.

   Using retirement savings for debt payment can be harmful.  Retirement savings are supposed to support a person during his or her retirement years. So, using the retirement savings for some other purpose may not be a prudent step. Especially, utilizing the retirement savings to pacify creditors can be disastrous for a healthy financial future. Just because of this, it is better for retirees to get the help that bankruptcy can give rather than paying off creditors with retirement savings. It is possible to get the total exemption of retirement savings and your valuable assets in a bankrutpcy. 

   Moreover, the fact that most people find the most disturbing, is that a bankruptcy filing stays on your credit report for about 10 years. However, it is generally not a problem for more than a few years, and since you are retired, borrowing money should be avoided at all costs. So, endangering your financial futrue just to pay unsecured debt is not at all advisable. Think long term and protect your retirement money. You may live a very long time and need it.

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