More Seniors Declaring Bankruptcy in Retirement

Retirees are increasingly racking up credit card debt.


Credit card debt and medical expenses are causing more older Americans to file for bankruptcy. The number of bankruptcy filers age 65 and older more than tripled from 2.1 percent of seniors in 1991 to 7 percent in 2007, according to a recent study of bankruptcy filings. While this is considerably less than the 12.4 percent of the general population that filed for bankruptcy in 2007, older Americans are the fastest growing demographic of bankruptcy filers.

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The median age of people declaring bankruptcy has climbed from 36.5 in 1991 to 43 in 2007. This graying of the bankruptcy population is driven largely, although not exclusively, by credit cards, according to John Pottow, a professor at the University of Michigan Law School and author of the report. Older bankruptcy filers are the most likely to have credit card debt and carry substantially higher balances than younger filers. Approximately two thirds of debtors age 65 and older cited credit card interest and fees as a reason for filing for bankruptcy, compared to about half of younger debtors. Younger filers had a median of $13,615 in credit card debt, while older debtors owed a median of $22,562 to credit card companies, according to the analysis of 2,500 questionnaires completed by bankruptcy filers and telephone interviews with 1,000 debtors. Those over 65 also have more credit cards than the younger filers. About a third (32 percent) of younger debtors held five or more credit cards, compared to 45 percent of older debtors.

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After credit cards, medical bills were the second most common cause of bankruptcy, Pottow found. Some 39 percent of the seniors say that a medical reason led to bankruptcy. Many of the elder filers (30 percent) spent more than $5,000 or 10 percent of their annual household income on out-of-pocket medical bills.

Silent debtors. Older and younger debtors report feeling equally embarrassed and reluctant to file for bankruptcy. However, elder debtors are less likely to negotiate with their creditors or ask for extra time paying bills. While 60 percent of younger filers asked their creditors to work with them, only 28 percent of older filers tried to work out an alternative payment schedule. Older debtors also appear more reluctant to ask for financial assistance from family, friends, and charities. Over two-thirds of younger borrowers (69 percent) asked friends or family for help before filing for bankruptcy, compared to just over a third (35 percent) of older filers. Only 2.9 percent of elder debtors turned to charities or churches for help, compared with 11 percent of their younger counterparts.

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Neglected nest eggs. Many seniors may have racked up this credit card debt because they weren’t adequately prepared for retirement. The monthly income of the elder debtors, $1,940, was lower than that of the younger ones, who typically earned $2,304 each month. Before filing for bankruptcy, many of the older fliers report that they were late on rent or mortgage payments (31 percent), went without required medication (31 percent), skipped doctor’s appointments (21 percent), and even went without food (10 percent). Over a third of elderly filers say they retired but then returned to the workforce, typically because they needed more money to cover everyday expenses (74 percent), medical costs (18 percent), and to get health insurance benefits (15 percent). Says Pottow: “My hypothesis is that they're hole-plugging, using credit cards to meet everyday expenses because their fixed incomes are not enough.”