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Seniors Struggling with Debt Likely to File for Bankruptcy

Older Americans are being squeezed in many ways. Healthcare and other basic expenses are rising. Fewer have pensions to supplement their Social Security income in retirement. Low interest rates mean what savings they do have isn’t growing quickly — unless they are willing to invest in higher-risk financial products.

And then there’s the other side of the equation: Credit and Debt. Many seniors have not properly planned for retirement financially. Many have used credit cards freely in the earlier stages of retirement to maintain their pre-retirement lifestyle without a plan on how to repay it.

Older Americans are increasingly struggling with debt. One study, the Demos’ 2012 National Survey on Credit Card Debt of Low- and Middle-Income Households found that Americans age 50+ have an average combined balance of $8,278 on all of their credit cards cards in 2012, compared with $6,258 of those under age 50. And researchers from Kent State University concluded that “the elderly are the population most likely to file for bankruptcy.”

Some of this debt may be unavoidable. Demos researchers found that more than one-third of those over 50 who are carrying credit card debt are using those cards to supplement living expenses.

Some of the debt is the result of an inability to say “no” to relatives. For example, a grandson who just graduated from college wants to get his first car, but doesn’t have a credit history – a daughter has gone through a divorce and asks her parents to cosign for an apartment – a child or grandchild wants to start a business but can’t get a small business loan. Whatever the circumstances, older Americans may find themselves agreeing to lend their name and credit to someone else’s loan. But they don’t always realize the risk they are taking when they do.

In the Demos survey, nearly a quarter of age 50 or older reported that some of their credit card debt was due to giving money to, or paying the debts of, relatives.

Also compounding the problem, older Americans may be reluctant to reach out for help due to shame about their situations or fear of being scammed. They may also be pressured by debt collectors into making the situation worse, say by withdrawing retirement funds to pay off credit cards or even shelling out money to debt collection scammers who threaten dire consequences.

If you are having trouble repaying debt — and especially if you are thinking about tapping retirement funds to pay debts, or using a reverse mortgage to do the same — get advice from a reputable bankruptcy attorney so you can make an informed decision about the best approach to handling your debt. And before paying debt collectors (for your debt or a family member’s) be sure you know your rights.

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