money management

Alternatives to Bankruptcy

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Between 1991 and 2007, bankruptcy rates among seniors rose 150%, with seniors aged 75-84 experiencing a 433% jump in bankruptcy rates. This makes seniors the fastest-growing group among bankruptcy filers, and for about half, medical costs are the primary culprit. Bankruptcy does not have to be the end of your financial future, and it may be the best option if you are truly unable to pay your debts and need a break from endless collection calls and financial stress. But for many seniors, a bankruptcy filing is not the best option. Talk to a financial advisor to review your options, and consider one of these alternatives to bankruptcy.

Reverse Mortgage

If you are over 62, look into reverse mortgages before you consider filing for bankruptcy. A reverse mortgage uses the equity in your home to give you money—a sort of reverse monthly mortgage payment. You still own your home and can live there for as long as you like, even if you are unable to ever repay the reverse mortgage. If general financial distress is the source of your interest in filing for bankruptcy, a reverse mortgage is often the best option.

Settling Your Debt

If your debts have already been sold to third-party collection agencies, chances are you’re overwhelmed by endless collection calls. But there might be good news here: these debt buyers often purchase debt for pennies on the dollar, since long-unpaid debts often remain unpaid. In many cases, you may be able to settle your debt for a fraction of the original amount, particularly if you are willing to pay upfront and in cash. Be careful, though. You will need to get your settlement in writing, and should seek proof that the company with which you are working actually owns the debt. Sometimes third-party collection agencies commit fraud, claiming to own debts they never actually purchased.

Consolidating Your Debt

For most seniors in debt, it’s the interest payments—not the debts themselves—that produce the most financial distress. Consolidating your debt may help you pay it down more quickly, and can reduce the hassle of trying to keep track of multiple monthly payments. Many credit cards offer introductory rates at or near zero, so if you think you can pay down your debt in 12-18 months, or at least significantly reduce it, consider switching to one of these low-rate cards. Your bank or credit union may also be able to offer you a low-interest loan to help you pay your debts more quickly.

Do Nothing

It probably goes against everything you have ever learned or believed, but sometimes, paying down your debt is not the best option. If you truly cannot afford the payments, you are “judgment-proof” if you own no property. This means that, even if you are sued, the company to which you owe the debt will not be able to recover the funds, because there are no funds and no property.

In some other situations, it may also be wise to avoid doing anything. If you are near the statute of limitations in your state, then your creditor can only sue you until the statute expires. But making a payment may reset the statute, so consider avoiding payments until the statute runs its course. After that, you can tell them not to call you any more, secure in the knowledge that there is nothing they can do to you.

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