Discussing Bankruptcy With An Older Relative
Just because a relative is older and living on a fixed income does not mean that he or she is also debt-free. Many older Americans struggle each month to pay unsecured debts from very modest incomes. The most common forms of unsecured debts are credit cards and medical expenses, and for many of our elderly even a small unsecure debt can be a big financial complication. Some face the difficult decision to cut back on food, prescription medicine, or home utilities in order to make minimum payments on these debts.
Many of our elderly try to avoid bankruptcy because they believe that they can pay their obligations with minimum monthly payments. The unfortunate truth is that it takes many years to pay off even a small high interest debt with minimum monthly payments. In the meantime a changed interest rate and annual fees can cause that minimum payment to increase. Additionally, forgotten payments can lead to creditor harassment or lawsuits which can result in a real estate judgment lien and/or an asset seizure.
Discussing personal bankruptcy with an older loved one can be difficult. In many cases there is great concern over losing property or income. The federal bankruptcy laws have changed significantly over the past fifty years and offer great protections for the elderly. For instance, retirement income and social security are protected from creditor garnishment during bankruptcy. In most cases all of the bankruptcy debtor’s property is exempt from turnover; however your bankruptcy attorney can discuss any property that may be at risk. The bankruptcy laws offer many options for retaining property and discharging debts. After the typical case the unsecured debts are discharged and there is more money available to pay necessary living expenses.
Another common concern is the embarrassment of bankruptcy. A personal bankruptcy is usually a very private legal process. Friends and family are not contacted and bankruptcy cases are not published in the newspaper. Only creditors and co-debtors receive notice of a personal bankruptcy.
If an older relative is struggling with debt, discuss the situation with an experienced bankruptcy attorney. The federal bankruptcy laws contain many protections that shield the assets and incomes of the elderly while discharging burdensome creditors. Don’t let the stress of credit cards and medical bills tarnish your loved one’s golden years.
Can I Contribute To My 401K After My 401K Loan Ends While In My Chapter 13 Bankruptcy?
In these times of uncertainty about whether social security will be available in the future, it is more important than ever that contributions to retirement accounts be done. One Judge in the Eastern District of Kentucky has decided that you can contribute to your 401K plan after your 401K loan ends rather than pay the extra amount into your bankruptcy. This is a big change in the practice of Chapter 13 bankruptcy in the Eastern District of Kentucky. In the past the Trustee has required that once a 401K loan is paid off the plan payment would then have to increase by the amount of the monthly 401K loan amount. For debtors who were not contributing to their 401K because of the loan, this meant that they could not contribute to their 401K during the Chapter 13 plan. If a debtor is making a payment on a 401K loan and contributing to the 401K at the same time, this will not apply to that debtor. They will still be required to increase their plan payments when the 401K loan ends.
Example: Debtor is filing a Chapter 13 plan on January 1, 2010 with payments of $500 per month for 5 years. He has a 401K loan of $250 per month that ends in December of 2012. He is not currently contributing to his 401K. The past practice would require that he increase his payment to the Chapter 13 plan in January of 2013 to $750 per month. Under the new opinion, he would not have to increase his payment to the Chapter 13 plan and instead could apply the $250 per month to a 401K contribution.
The Trustee has asked that in these cases the debtor be required to notify the Trustee within 10 days of the ending of the 401K loan with proof that the amount was now being contributed to the 401K. If this does not occur then the debtor may be required to turn over the funds to the Trustee as part of the plan payment.
In Re: Seafort and Schuler 08-22380/08-22417