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Avoiding Bankruptcy

In evidence of a worrying trend, American adults age 55 and over experienced the sharpest increase in bankruptcy filings of any age group since 1991, according to a recent study conducted for AARP’s Public Policy Institute.

While the bulk of bankruptcy filers are in their 30s and 40s, Americans age 55 or older have experienced the sharpest increase in bankruptcy filings,  accounting for 22 percent of all those in bankruptcy proceedings in 2007. That number is up from only 8 percent in 1991.

A weak economy and increasing health care costs put older Americans at greater risk for bankruptcy. Health care expenses can be one of the biggest, if not the biggest, causes of bankruptcy among older Americans.

Have your finances reached the point at which bankruptcy feels like the only way out? Filing for bankruptcy can take a heavy emotional and financial toll, so it is worthwhile to first explore ways to avoid the necessity of taking this action. Depending on your own circumstances, there may be ways to avoid bankruptcy, even if your current outlook is bleak. The sooner you address a financial setback, the better able you will be to cope with it.

Here are the three common causes of bankruptcy and ways to protect against them:

1. Credit Card Debt. If credit card bills are becoming difficult to pay, first take the scissors to all but one card and use the surviving card sparingly. The objective is to begin paying down the balances rather than adding to them. Pay at least the minimum due on each card each month. If you have any money left over, begin paying down the highest interest credit card first. If you are or anticipate having trouble paying the minimum balance, don’t wait for the credit card company to call you. Contact the company and explain your predicament. It may have a plan that will allow you to temporarily reduce your payments.

Special Note to Retirees: Try to avoid carrying any credit-card balances at all. Unused balances can provide a bit of a financial cushion in the event you have a short-term financial emergency that can’t be paid out of savings. Better yet, set aside money in a savings account, Certificate of Deposit (CD), or money market fund that is to be used only to pay for unexpected expenses.

2. Job Loss. Losing a job can be financially devastating, particularly for those nearing retirement. Fully 40 percent of those who retire early do so involuntarily because of a job loss or health problems of the worker or a family member. If you’re nearing retirement age, you should always anticipate the possibility that you may be forced to retire early. If you’re concerned about losing your job, there are steps you should take to cushion the blow. Those steps can include examining other job opportunities, preparing a budget that assumes a period of unemployment, reducing current spending, and increasing the amount of money you’ll have available to tide you over. Be proactive.

3. Medical Expenses. Always carry health insurance for yourself and your family. If your employer doesn’t provide coverage, look around for state-sponsored programs or privately purchased coverage. If affordability is a problem, opt for high deductibles, which reduce the cost.

Special Note to Retirees: Big medical expenses are the biggest threat to your financial security. Two ways to prevent disaster are to stay as healthy as possible through good nutrition and regular exercise and to maintain as much medical insurance as you can afford. In addition to Medicare, essential coverage for retirees includes a Medicare supplemental (Medigap) policy and Medicare Part D drug coverage. Long-term care insurance, particularly for couples, will offer additional protection against the big financial drain of home-health or nursing-home care, if you can afford the coverage.

Bankruptcy Seems the Only Path. If there seems to be no way out from under your hill of bills, you may be inclined to do nothing and hope for the best. That’s a bad idea, though, because the sooner you take action, the better.

Before consulting with an attorney, you should speak with a legitimate consumer credit counseling organization. I say “legitimate” because many organizations claim they’re credit counselors, and they run slick ads, but they end up taking your money and doing little or nothing to help you.

Legitimate credit counseling firms are affiliated with the National Foundation for Credit Counseling ( or the Association of Independent Consumer Credit Counseling Agencies ( Consumer credit counselors may be able to work out a plan for you to resolve your predicament.

Consider bankruptcy only as a last resort. Recent legislation has made it more difficult to declare bankruptcy. But it may be your only alternative. A bankruptcy typically stays on your credit record for a decade and makes it very hard to get credit for at least a few years and may also impair your ability to get a job or rent an apartment. But it is not the end of the world, and many who have taken that well trod path have been able to rebuild their creditworthiness.

All the information presented on is for educational and resource purposes only. We suggest that you consult with your financial or tax adviser with regard to your individual situation. Use of the information contained in this Web site is at the sole choice and risk of the reader.