You may hear a senior overburdened with debt complaining, “I got through the Great Depression not owing anyone a dime, but now in retirement I am so hounded by collectors that I need to file bankruptcy.” Because many seniors often have few assets but lots of benefits, you may hear your own voice replying, “If your only significant assets are exempt from attachment by creditors, why do you care to file a no-asset bankruptcy when you could just rely upon the knowledge that you are judgment proof?”
Of course, not every senior is judgment proof, nor will every senior qualify for a no-asset bankruptcy. Of the many clients who seek advice about asset protection, only a few are motivated by insolvency. However, the insolvent senior has concerns and needs far different from younger clients.
Having only assets that are exempt from creditor attachment is different from not having any assets or income at all. Each state has its own exemptions, that is, laws that insulate some property and income from the reach of most creditors. In each state, some of the exemptions apply generally and some only in bankruptcy. Some states reference the national bankruptcy exemptions found in Title 11 of the United States Code, while others are opt-out states, meaning their bankruptcy exemptions are incorporated into the Bankruptcy Code through 11 USC 522. Even so, federal law still provides some global inclusions, exclusions, and limitations. For instance, military service personnel may have a wider choice of exemptions. Also, no matter where you live, federal law protects Social Security benefits from both bankruptcy and general creditors (42 USC 407). Many benefits are protected by other statutes. On the other hand, depending on the value of a home, a homeowner who has only recently established residence could have their bankruptcy homestead exemption determined by the state of former residence (11 USC 522(p)). Additionally, no matter how strong any state’s asset protection trust laws may be, creditors and bankruptcy trustees will strive to find loopholes.
Being fully exempt doesn’t mean that you can’t still be the target of collections. Because exemptions are not automatic, collection lawyers may try to enforce judgments against seemingly judgment-proof seniors. For exemptions to effectively protect assets, they must be claimed or asserted. That is, being judgment proof does not mean that a judgment cannot be taken against you. It only means that if available exemptions are applied, there are no nonexempt assets against which an order in aid of execution can be enforced. For instance, a judgment lien holder could still tie up a bank account to see if any funds will be paid over. Moreover, judgment liens can stack against a home even if there is no equity. Judgment lien holders have a right to foreclose even if doing so is pointless. Exemptions mostly restrict only judgment creditors or bankruptcy trustees. In many states, they do not impair the right of a lender secured in a car to repossess or a mortgage holder to foreclose.
In the same way, being classified as a no-asset bankruptcy does not mean that you have no assets. Among other things, bankruptcy exemptions allow debtors to keep substantial equity in home, car, and even money in the bank. The phrase no-asset comes from the perspective of the bankruptcy trustee who must file a status report regarding the administration of a Chapter 7 case. No-asset is shorthand for a trustee reporting that there are no assets available for administration (meaning liquidation). It could be that there are some nonexempt assets existing that are too small, or too tied up, or too contingent to be a worthwhile target for liquidation in a bankruptcy case. However, because of differences in the cost of collection between a bankruptcy trustee and a collection attorney, something termed insignificant or burdensome by a trustee could be a good day’s find for a collection lawyer.
Because seniors may disproportionally worry about collections, there are two common justifications for senior no-asset bankruptcies. But before getting there, first consider the mental capacity of the senior and the influences that brought the senior to you. Is there a spouse or an adult child encouraging a filing for self-benefit? One motivation is to avoid having creditor claims in a future probate estate. If the senior wipes the slate clean with a bankruptcy now, a later probate might be free of creditor claims. Another influence is the gift-giving tendency of your client. Sometimes seniors drive themselves to the poorhouse helping children who accept assistance in reckless disregard of their parent’s needs. Sometimes the influence is a deceitful child who has run up a marginally competent senior’s charge cards for his or her own gain. Even though there are no easy answers, if you discern a pattern, you should inform those involved that bankruptcy will not really provide a fresh start unless the pattern changes. Still, sometimes no matter how suspicious things seem, all involved actually do share the common goal of putting the senior’s affairs in order, giving them piece of mind and insulating them from debt collectors.
Don’t assume that every senior bankruptcy is going to be a no-asset case. Do a normal intake evaluation, but add some follow-up questions in light of your determination about your client’s mental capacity and about those who are influencing the bankruptcy decision. Beyond Social Security, do not automatically assume that every benefit program is exempt. Carefully match benefits to exemptions. However, even when handling a simple case, dumb reliance on the bankruptcy assembly program is dangerous. The assembly programs are mostly right, but some circumstances exceed the program’s abilities. Because joint ownership in a senior case is just as likely to be between parent and child as between spouses (even in a joint, married-debtor filing) the assembly program may mistake a category. Also, asset allocation transactions undertaken in the last few years for estate planning purposes may fall into bankruptcy’s preference or fraudulent conveyance traps.
Compounding difficulties, you may find that you have a client who is in the early phases of dementia. Diminished ability is not a disqualification, and confusion does not necessarily make your client incompetent for bankruptcy purposes. Debtors are allowed to have help putting together the required information and making the mandated disclosures. Try to find a time of day or setting that maximizes your client’s abilities.
But even if your client has lots of help answering the questions and reviewing the schedules, there are a few things he or she should be cognizant about: (a) the filer should understand that he or she is filing bankruptcy; (b) the filer should know that he or she has decided to file because of problems with debts; (c) the filer should be able to remember that he or she signed the bankruptcy schedules of their own free will after reviewing the information; and (d) even if the filer can’t remember the information, the filer should be able to recall that at the time of the review, he or she believed the information to be true and accurate.
Sometimes instead of a client, you have a family member in front of you holding a power of attorney. Check to see that it is a properly executed durable power. If it is a springing power, check to see if the condition precedent has occurred. Inquire if the attorney-in-fact is seeking the filing because the senior is not ambulatory or not lucid. If not ambulatory, can you confirm your client’s intention by telephoning the senior? Can you travel to obtain his or her signature? If not lucid, a recently executed power of attorney may be questionable. Can bankruptcy ever benefit someone who is already confined to the protection of assisted living? Difficult situations call for independent investigation. If the helper or the supposed attorney-in-fact appears offended or is actually resistant to your diligence and professionalism, you should walk away because few things are as discouraging as having small case become an ethics investigation or family dispute. Also consider how the prebankruptcy credit briefing requirement will be fulfilled and if you will need to file a motion to have it waived.
Having a lot of consumer indebtedness or, for that matter, large charge card balances usually does not indicate a spending spree. Medicines, medical treatment, and health aides are commonly paid for by charge card. Repair people and independent care workers often charge seniors all they can. Numerous scams still target the elderly. Often, retirement benefits are not adequate for even a modest lifestyle. These factors often pave the way for the two most common justifications for a senior no-asset Chapter 7 filing, which are peace of mind and the regaining of control over finances.
Peace of Mind
Collector phone call and letters can be very confusing and disturbing. Collectors can get seniors to pay bills they don’t have to forsaking food or medicine they need. Even when judgment proof, the collection process can cause aggravation and affect health. Of course, instead of filing Chapter 7, one could represent the senior on each bill by sending each creditor a protection letter pursuant to the Fair Debt Collection Practices Act (FDCPA). But instead of being a result, enforcement of protection under FDCPA may become an ongoing process. In contrast, Chapter 7 may offer a cost effective result that brings nearly immediate finality.
As we become infirm, we lose control over many aspects of our lives. This motivates some to try to exercise what control they can. Putting one’s affairs in order is a form of maintaining control over one’s life. Among the several ways that may be available to put one’s affairs in order, the bankruptcy option may be attractive as being both cost-effective and immediately obtainable. Thus, bankruptcy can be worthwhile personal experience resulting in a feeling of increased control and peace of mind for both the senior and the client’s family even if the financial change is marginal.
I find that seniors express appreciation more readily than younger people. So even though you may need some extra patience along with a customized approach, working with seniors can be very satisfying. Although you’ll meet some individuals whose voice is drowned out by those around them, you’ll meet others who are much keener than frail bodies would initially lead you to believe. You may find that, with the perspective of life, even a senior who does not have a handle on every number and every bill still has a good grasp of the big picture.