Seniors and Bankruptcy

Social Security Is Fully Protected

Social Security benefits - including retirement, disability (SSDI), and survivor benefits - are completely excluded from the means test calculation under 11 U.S.C. Section 101(10A). This means your Social Security income does not count against you when determining Chapter 7 eligibility. Additionally, Social Security funds are protected from creditors under 42 U.S.C. Section 407, even after they are deposited into your bank account, as long as they remain traceable to Social Security.

Retirement Accounts Are Exempt

Federal bankruptcy law provides strong protection for retirement savings. ERISA-qualified plans - including 401(k)s, 403(b)s, profit-sharing plans, and defined-benefit pensions - have unlimited protection under 11 U.S.C. Section 522(b)(3)(C). Traditional and Roth IRAs are protected up to $1,512,350 (2024 adjusted limit). SEP-IRAs and SIMPLE IRAs receive unlimited protection because they are treated as ERISA plans. Your retirement savings are not part of the bankruptcy estate and cannot be taken by creditors or the trustee.

Medical Debt - The Leading Driver for Senior Filings

Medical debt is the single largest reason Americans over 65 seek bankruptcy protection. Unlike student loans or tax debts, medical debt is fully dischargeable in both Chapter 7 and Chapter 13. A single hospitalization or cancer treatment can generate tens of thousands in bills, even with Medicare coverage. Bankruptcy eliminates this debt entirely, giving seniors a genuine fresh start without sacrificing their Social Security or retirement accounts.

If medical debt is your primary burden, Chapter 7 may be the fastest path to relief - most cases are completed in 3 to 4 months with no repayment required.

Reverse Mortgages and Bankruptcy

If you have a reverse mortgage (Home Equity Conversion Mortgage), filing bankruptcy does not automatically trigger repayment. The reverse mortgage lender cannot call the loan due solely because of a bankruptcy filing. However, you must continue to meet the loan obligations: maintaining the home as your primary residence, staying current on property taxes and homeowners insurance, and keeping the property in reasonable condition. If you are behind on property taxes, a Chapter 13 plan can help you catch up over 3 to 5 years while keeping your home.

Fixed Income and Chapter 7 Eligibility

Seniors living primarily on Social Security often qualify easily for Chapter 7 because those benefits are excluded from the means test entirely. Even if your monthly Social Security exceeds the state median income, it does not count. Pension income is counted in the means test, but allowable deductions for out-of-pocket medical expenses, prescription costs, and age-related needs frequently bring the calculation below the threshold. Many seniors on fixed incomes are strong candidates for Chapter 7.

When Chapter 13 Makes Sense for Seniors

Chapter 13 may be the better option when you need to:

• Catch up on a mortgage or property tax arrearage to keep your home
• Protect non-exempt assets that would be liquidated in Chapter 7
• Strip off a junior lien on your home if the home is worth less than the first mortgage
• Repay priority debts (recent taxes, for example) over a manageable 3- to 5-year plan

Under Chapter 13, your plan payment is based on disposable income. Because Social Security is excluded, many seniors can propose very low or even zero-dollar plans while still catching up on secured debts.