LTC Bullet: Bankruptcy Plagues Seniors

Wednesday, June 2, 2004


LTC Comment: Ill omen: bankruptcy among the elderly is on the rise already, a decade before the Age Wave starts to crest. More after the ***news.***

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LTC Comment: Seniors used to be the poorest population cohort in America. Then came Social Security, Medicare and Medicaid. Today, the elderly are the wealthiest group in American society.

It's all relative, however. Many older people are poor. They just aren't quite as poor as younger people proportionately. The big difference in their situations, of course, is that old people don't have many years ahead of them to produce, save, invest and insure in preparation for long retirements.

That's why recent reports of rising bankruptcies among the elderly are alarming. These bankruptcies are an early warning system clanging: "Look out, tough times ahead." Boomers especially, take heed.

LTC Bullets have faithfully brought you dire warnings from the General Accounting Office, the Congressional Budget Office, and numerous think tanks and independent scholars. To wit: America's social insurance house of cards will likely be swept away by the on-coming inevitable demographic tsunami long before speculative ecological traumas like those portrayed in "The Day After Tomorrow" could ever come to pass. Yet dramatic speculation trumps hard, dull predictability every time.

If we do not do something soon to put America's retirement and health security system right, it will be too late. High credit card debt and rising bankruptcies among the elderly are just two more signs that time is running out.

People must realize--and financial advisors should tell their clients--"do not count on public programs to be there for you as they were there for your parents. Start now to prepare to pay your own way for retirement income, health care and long-term care."

Those who heed this advice will protect themselves and their families. For every person who takes personal responsibility, however, there will also be a supplemental social benefit. The only hope America's safety net programs have to survive, is that the load they have to carry will be substantially reduced by responsible citizens who have sacrificed current consumption to prepare for their own future needs.

Thus self-interest and social responsibility coincide.


We thank Tim Takacs, Certified Elder Law Attorney and publisher of the "Elder Law Fax," a free weekly online newsletter, for permission to republish the following article. You can subscribe to Elder Law FAX by sending an empty e-mail message to: .

ELDER LAW FAX -- May 17, 2004 -- This issue:
"Bankruptcy Rising Among Elderly Americans"

More and more older Americans are drowning in debt and turning to bankruptcy court for relief.

Although older Americans account for a small proportion of total personal bankruptcy filings, they are the fastest-growing group in bankruptcy. About 82,000 Americans 65 or older filed for bankruptcy in 2001, up 244% from 1991, according to the Consumer Bankruptcy Project, a study done at Harvard.

The United States Department of Justice, which runs the federal bankruptcy trustee program, released a study that painted a grim picture of the future for many older Americans.

According to the report, the average gross monthly income of an elderly debtor, $1544, is more than one-third below the average for Chapter 7 debtors ($2354). And for the average elderly debtor, Social Security benefits are the main source of income.

"Although the elderly are less likely to file chapter 7 bankruptcy than younger people, a significant number of them do file each year. The number of elderly filers is likely to grow in the coming years," the Justice Department report concludes.

The Justice Department found that most elderly debts have very high concentrations of credit card debt -- not, as one might expect, high medical expenses.

A recent report from Demos, a New York-based public policy research group, found an alarming increase in credit card debt among older Americans.

"Conventional wisdom suggests that this segment of the population -- with lifetimes of financial experience, an over 80% homeownership rate and a generational ethos of thrift -- would be immune to the record debt increases of the 1990s," the report notes.

The Demos report, "Retiring in the Red," found that self-reported credit card debt among seniors age 65 and over increased 89% to $4041, between 1992 and 2001.

Among the report's other key findings:

* Seniors between 65 and 69, presumably the newly retired, reported a staggering 217% increase in credit card debt to $5884 over the same period.

* About 20% of households over 65 are in "debt hardship," with at least 40% of their income committed to debt payments.

* Having medical insurance -- or not having it -- made a major difference in credit card debt. Families in the 55 to 64 age range, for instance, had seen a credit card debt increase of 169% if they had no health insurance, but only 37% if they had health insurance.

* Credit card debt among "Transitioners," those aged 55-64, jumped 47% to $4088 over the last decade. In fact, the average credit-card indebted family in this age group spends nearly one-third of its income on debt payments.

The Employee Benefit Research Institute found that American families with a family head age 55 or older had approximately the same level of debt payments relative to income and of debt levels relative to assets in 2001 as they did in 1992.

That's the good news. The bad news is that there has been an increase in the percentage of heavily indebted families -- defined as those with debt payments exceeding 40 percent of income -- especially for family heads in the two oldest groups (ranging from 5 to 10 percent of all near elderly and elderly families).

In terms of retirement security, EBRI's Dallas Salisbury noted that, on the whole, the new data are positive that most older families did not appear to be overburdened by debt in 2001. But he warned: "This changing nature and level of family debt has obvious and serious implications for the future retirement security of many Americans. The major implication is more families having at risk what for many families is their most important asset: their home."