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Bankruptcies Up for Older Adults

Filers cite lost jobs, credit card debt and empty retirement accounts

When the economy tanked in 2008, Alvin Ferdinand depleted his retirement nest egg and maxed out his personal credit cards trying to save his Michigan business. At age 64, he says, he had no choice but to file for bankruptcy, losing the three assisted living facilities he owned and administered.

Irene Froehlich, 61, dutifully paid her credit card bills on time, even after her commission-only income fell by 75 percent two years ago. But when the credit card companies raised her interest rates, says the Chicago resident, she was backed into a financial corner. She filed for bankruptcy in November 2009.

The recession that drove these two people to the edge is helping drive a larger trend: a rising rate of bankruptcy filings by older Americans. Historically, soaring medical debt was the main reason older adults took this extreme step.

These days, the rate is pushed up increasingly by lost or reduced income, a weak labor market and depleted retirement accounts.

In a sign of the times, the number of personal bankruptcy filings by people of all ages rose to 1.5 million in 2010, the highest level since 2005, when the law was revised to make it harder to wipe out debt, according to the American Bankruptcy Institute.

The Institute for Financial Literacy (IFL), based in Portland, Maine, did an age breakdown of the data for 2009, when 1.4 million people sought bankruptcy protection (analysts are still processing the 2010 figures). The study found that older people are making up an increasing proportion of the nation's bankruptcy filers.

People ages 45 to 54 accounted for 27 percent of all filers in 2009; in 2006, when 598,000 people filed for bankruptcy, this age group accounted for 25 percent of the total.

The 55-to-64 age group made up 17 percent of filers in 2009, up from 14 percent in 2006. The 65-and-up group, meanwhile, made up 8.3 percent of all filers in 2009, a rise from 7.8 percent in 2006.

Leslie Linfield, executive director of the IFL, is concerned by numbers like these.

"A young person has the ability to rebuild themselves financially," Linfield says. "Are seniors afforded that same opportunity by virtue of their age? Are we as a society taking care of our seniors when so many have to seek bankruptcy protection to begin with?"

'It's all hole-plugging'

Older adults who lived through the Great Depression and generally shunned credit card use have begun in recent years to embrace it, perhaps out of necessity. And some are drowning in debt as a result.

According to a University of Michigan study, 67 percent of people age 65 and older who filed for bankruptcy in 2007 cited credit card interest and fees as a culprit, compared with 53 percent of those under 65.

"There's been a cultural shift in the attitude of older borrowers," says University of Michigan Law School professor John Pottow, an author of the study. "But what's equally possible is that they're just squeezed more financially. People are living longer and paying more for health care and carrying mortgages into their senior years. They're refinancing to pay off debt. It's all hole-plugging.

"We have a structural problem for older people — it's an income and expense disparity, and it's just going to get worse as people continue to live longer. We are not addressing this" as a nation, he adds.

Living on credit cards

Older adults who live on fixed incomes may have turned to their credit cards to pay for increasingly expensive medical treatment, gas, food and other necessities.

But Neil Ellington, executive vice president of CESI Debt Solutions in Raleigh, N.C., says it's often a different story for filers who are baby boomers. He believes that many of their bankruptcies result in large part from using debt to live beyond their means.

Often they refinanced their mortgages, tapping equity in their homes to pay off billowing credit card debt. When home values fell, many lost some or all of their equity and, consequently, their retirement savings.

Then there are people who lost jobs in the recession and lived on credit cards for about a year before filing for bankruptcy, says Theodore Connolly, a Boston bankruptcy attorney, explaining his clients' predicaments.

Some of the older filers are people who have already retired and are looking to stretch their limited incomes by lowering or eliminating monthly debt payments. For people who are still working, experts say, filing for bankruptcy could push retirement far off into the future, forcing them to keep working longer than they'd planned to rebuild savings.

Froehlich, for one, says she never planned to stop working, even before she filed: "I think people have this mind-set that they should retire at a certain age. Why? Just keep going. It keeps your mind active and it gives you a purpose."

Bob Calandra is a freelance writer living near Philadelphia.