Everyone has an idea about the legacy they wish to leave behind. What that legacy is in reality and what you want it to be can be two different things. Is your legacy to your kids an encounter with your unpaid creditors?
Often, problems with creditors for people over 65 may not be problems the elderly debtor at all. Most types of income and assets are protected by law from creditors.
Usually though, that doesn’t bother creditors. They’ll just wait until you’re dead to steal your assets from those you wish to inherit from you.
Seniors enjoy protection from collection
Elders in Georgia have significant legal protections from creditors. Exemption laws, pension law, and the Social Security Act often make it hard for creditors to seize the assets of elders, even to pay legitimate debts.
People often make the argument against seniors filing bankruptcy because of the following reasons.
- Social security is 100% protected from creditors (unless you owe the government).
- Your Pensions and other retirement accounts are beyond the reach of even those with a judgment against you.
- Houses are not liquid assets and it’s extremely difficult for creditors to make you sell your house.
- Seniors usually don’t have an income outside of these aforementioned sources so there’s nothing to garnish.
Because of these generous protections, senior citizens often ignore debts and use their money to pay for today’s expenses, at the expense of what they’ll leave their heirs.
However, just because you can ignore old debt, is that really a part of the legacy you wish to leave behind?
Some debts outlive the debtor
So, what happens when you die? Does the debt go to the grave with you? Turns out, the debt lives on.
That doesn’t mean your heirs inherit your debt; in other words, your heirs don’t become personally liable for your credit card balance.
What many people don’t realize is that debts are paid in full before heirs will receive anything.
As per probate laws, debts are paid before the estate is distributed to your heirs. If the deceased created a living trust, the trust usually provides that the successor trustee pay the deceased’s debts first.
When debts survive the debtor, the intended heirs inherit a significantly diminished estate, or a ticking time bomb of debts that are owed to the deceased person’s creditors.
Creditors lie in wait
Everyone has heard about interest. Interest is a creditors best friend. Interest on outstanding debt is often meaningless to the senior citizen who can avoid paying it while they’re alive. The downside to this is the fact that time and interest silently eats up the senior citizen’s estate.
Who cares if there aren’t any real viable means of collection.
Waiting works for a creditor.
- Wait til the senior dies.
- Wait while the interest compounds.
- Wait til the records conveniently get lost.
Creditors are often adept at lying and manipulation. They will work hard at making your heirs feel guilty and convince them to pay off the debt from their own pockets after you’ve passed on.
The generosity gene
The impulse to pass along something to your children seems to be genetically implanted in the human soul. It’s something that drives many seniors to live frugally, save and work hard. But under our legal system, paying debts is higher priority than leaving something behind for your heirs.
Despite arguments to the contrary, bankruptcy is not only appropriate for a senior with debts and assets that are protected from creditors during their lifetime, but highly advisable.
The exemptions that protect the assets under state law and the laws that made the senior judgment proof to begin with are also there to protect you should you file bankruptcy.
Without filing bankruptcy, all the exemptions will do is just hold the creditors off during the life of the debtor. That debt will lay in the grass, hiding like a snake, waiting to collect from your estate and ultimately, your heirs.
Another thing you have to remember is that bankruptcy exemptions vastly more generous than probate exemptions. In fact, unless there is a surviving spouse, there may be no exemptions in probate at all. Exemptions are designed to protect the surviving spouse, not their heirs.
Bankruptcy flips the equation
A bankruptcy, by its very nature, eliminates unsecured debts. Things like credit cards and medical bills are magically gone, while the exemptions protect assets.
One a debt is discharged that debt is gone, forever, never to be heard from again. Bankruptcy law returns complete and total ownership of exempt assets back to the debtor.
Your Social Security payments both current and future, doesn’t even enter the bankruptcy equation. All of your Pensions and 401(k)s are also not subject to the bankruptcy.
One thing you need to know is that in order to successfully pass your assets on to the next generation by using bankruptcy, you need a good bankruptcy lawyer who doesn’t dabble but actually KNOWS the law. It’s hard work and requires planning but the results are worth it.
By eliminating your debts before you die, there’s more left for your family, and that’s always a good thing.