At a time when seniors should be enjoying their “golden years”, many are instead drowning in debt.
The statistics are startling. According to the Employee Benefit Research Institute many families headed by those 75 and older are overwhelmed by debt. They had increases in the incidence of debt, the average amount of debt and the percentage with debt payments that topped 40% of their income in 2010. However, those headed by households ages 55-65, and 65-74 had minor changes in these debt benchmarks, and in some households, there were even improvements.
For families with someone 75+ at the helm, average debt increased doubled from $13,655 in 2007 to $27,409 in 2010. What's putting seniors in the hole? According to EBRI, for households headed by someone 55 and older, the primary cause is housing debt – almost 75% of debt payments go to pay for housing among these families.
There are other culprits like medical debts, but what may be somewhat surprising is the number of seniors struggling because of credit cards and student loan debt. It's been widely reported that Americans 60 and over still owe about $36 billion for student loans. For a look at how credit cards are taking a toll on seniors, check out, this research paper. With so much debt, it's not surprising that seniors are turning to bankruptcy as a way out.
Jerome Lamet, attorney and founder of Debt Counsel for Seniors & The Disabled, is frank about where the heart of seniors problems lie, “The primary cause of senior debt is the high interest rates on credit cards. They can't afford 23% interest rates. They are being abused by the banking industry,” he says.
Lamet says his firm's average client has about $1,200 in monthly income, and debt of about $25,000. “They are charging prescriptions and things not covered by Medicare. It's not like they are running off to Las Vegas,” says Lamet.
He recently got a new client who had gone to the emergency room and stayed there for a few hours before the hospital decided to admit her. She stayed a week and got a $100,000 bill, says Lamet, who adds that Medicare covered only her ER visit.
As if the stress of owing, for a generation that likes to pay their obligations, isn't enough, he says the calls all day and night from creditors has a negative effect on many seniors' health. “With the loan shark rates, they will never get out of debt,” he says.
David Leibowitz, founder of Lakelaw, which specializes in bankruptcy, says seniors continue to be vulnerable to bankruptcy. He recently met a 63 year-old woman whose attorney husband died suddenly at home while she was recuperating from heart surgery. All her furniture, clothing and other goods had to be removed, owing to the decomposition of his body. “She faces insurmountable medical bills too, not to mention credit card debts. Her husband died without life insurance and she has limited income, just her husband's social security. “Bankruptcy is in her future,” says Leibowitz soberly.
He also has clients who are thinking twice about having been so generous. “Some seniors are dealing with the crushing debt of student loans they signed on for their college student children who went to school 10 years ago and still can't find work,” says Leibowitz.
Then too, some seniors can only look in the mirror for the reasons they are where they are. They failed to save enough for retirement. “One of the most important reasons seniors are unprepared is the shift from defined benefit plans to defined contribution plans. People are not required to contribute to 401k or IRA plans,” says Leibowitz. Some have saved, but when they get in a pinch, too frequently they withdraw from their 401k plans or IRA to meet present needs.
Debt management 101
Stories abound. The question is, what to do, how to move forward?
Seniors drowning in debt should look at their assets and liabilities. “If their assets are mostly exempt (most always the case) and their liabilities are insurmountable, they might consider bankruptcy, says Leibowitz.
Seniors could also be “judgment proof” meaning that creditors can never recover anything from them because all of their assets are exempt. Sometimes, a letter to creditors explaining that the debtor has no assets and no income from which recovery is possible, is enough to get creditors to charge off accounts, says Leibowitz. For example, 401k and IRA money is untouchable, as is social security, though pension income can sometimes be reached by creditors, it varies from place to place, says Leibowitz.
He advises seniors not to pay off creditors with the cash value of life insurance, 401k or IRA funds, or other assets which creditors can't reach.
Stand your ground. “Seniors should not allow themselves to be bullied by hyper-aggressive creditors. If hyper-aggressive creditors violate the Fair Debt Collection Practices Act, the senior should consult an attorney,” says Leibowitz.
If you are paying off your child's student loans, you may be able to get relief. “Although it is difficult to prove, payment by seniors on children's student loans might be a 'substantial hardship' entitling the senior to some level of relief in bankruptcy,” says Leibowitz.
Whatever happened to aging with dignity?