Older Americans Resorting to Personal Bankruptcy

   

Bankruptcy has become a highly visible part of the fallout of the recession in the United States, and no group may be more susceptible to having this kind of trouble with their personal finances than the country's senior citizens.

A recent report from Newsweek, citing data from the AARP (formerly the American Association of Retired Persons), noted that, in the past eight years, people who are 55 and older are the most likely to declare bankruptcy due to consumer debt. The problems that older Americans are up against when it comes to their personal finances are manifold, from foreclosures on homes that have lost value to medical debts associated with credit cards.

According to the Employee Benefit Research Institute (EBRI), the amount of debt for those who are retired or near retirement age increased by a substantial amount between 1992 and 2007. In that time, the average debt level for households whose head was 55 or older increased from $32,191 to $70,370.

The EBRI noted that the percentage of people who are near or at retirement age and are in debt also increased. In 2007, 63 percent of people who were older than 55 had some form of debt, which is 10 percentage points higher than in 1992.

The report from Newsweek stated that options available in the past to seniors may not be viable anymore.

"In different economic times, retirees might have downsized and cashed in their homes to pay off their debts — or at least have gotten reverse mortgages against those homes to carry them for a while," reported Newsweek. "But with declines in housing markets, they may not have enough equity in their homes to do that."

A recent study from Harvard University showed that medical debt was the cause of 62 percent of bankruptcies in 2007. Given the health concerns that many older Americans face, the prospect of having medical bills without a full-time job or adequate health insurance adds to the instability of their personal finances.

Credit cards are also becoming an increasing problem for older Americans, especially with regard to medical debt. A recent report from Demos, a political advocacy group, noted that the average amount of credit card debt associated with medical bills for those older than 65 was almost $4,000 in 2008, which was the highest amount for any age group.

Overall debt associated with credit cards also increased for the elderly, according to Demos. From 2005 to 2008, the amount of debt on credit cards for those older than 65 increased from $8,138 to $10,235. That represents the largest increase for any age group.

As a result, many elderly Americans may turn to bankruptcy as a way to find their way out of debt. However, the AARP notes, there are ways for older people to avoid the typical reasons for bankruptcy.

For example, seniors should avoid having any debt on their credit cards, and if they do, they should concentrate on paying at least the minimum each month. Furthermore, seniors should cut down on the number of credit cards they have.

Job loss is another issue older people may face, and AARP advises that they should plan ahead for the possibility of a forced retirement.

"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," the AARP stated.