More Senior Citizens Forced to Declare Bankruptcy

By Ana Veciana-Suarez, The Miami Herald

March 30, 2009

Jose Abrahantes has been working for about half a century -- in construction, landscaping, even as a janitor cleaning offices on the night shift. He figured he would eventually enjoy a relaxing retirement.

But at 66, with medical bills piling up after an emergency surgery, Abrahantes has filed for bankruptcy. Retirement isn't even in the picture. Instead, he's working part-time at a Publix bakery.

''I had no choice,'' said Abrahantes, who rents a modest Little Havana apartment with his wife, Carmen. ``If I'm making $8 an hour and trying to live off that, there's no way I'm going to pay down all my bills.'' 

Abrahantes is one of a growing number of senior citizens doing what they once thought unthinkable -- or, as Abrahantes put it, ''embarrassing and painful.'' Hit hard by the slumping economy, unable to pay mounting bills from meager retirement savings, older Americans are filing for protection from their creditors in record numbers. Experts said many end up bankrupt because of medical bills they can't afford to pay. Others simply can't cover their living expenses with their Social Security and savings.

In 2007, Americans 55 and older accounted for 23 percent of the more than one million Americans who filed for bankruptcy, a threefold increase from 1991, according to a recent AARP study. They experienced the sharpest increase in bankruptcy filings of all age groups, jumping from 8.2 percent of all debtors. The numbers are especially stark for older seniors, with bankruptcy more than quadrupling for seniors ages 75 to 84.

Elizabeth Warren, a professor at Harvard Law School and the AARP study's author, said these bankruptcy filings provide a snapshot of the financial vulnerability of older Americans who ``now, more than ever, are confronting serious financial challenges.''

What's more, advocates said seniors have been filing at even higher rates since 2007, the last year of the AARP study, because of a declining economy, increasing healthcare costs and a lack of retirement savings.

''It's bad,'' said Barbara Prager, executive director of Coast to Coast Legal Aid of South Florida, which serves people 60 and older in Broward. ``We're seeing a lot of seniors with medical debt and without the income to pay for it. And it's coming at a time when it's harder to find solutions.''

Carlos Franco, the community outreach director for the nonprofit Consumer Credit Counseling, said the problem may be compounded in South Florida, where many senior citizens can't understand English or don't have the savvy to negotiate debt relief.

''They let the bills pile up. They bounce checks,'' he said. ``They don't understand what's going on or what the bills and letters are saying.''

FINDING SOLUTIONS

His counselors don't automatically suggest bankruptcy. Instead, they draw up a budget and look at a family's income versus its expenditures. If possible, they ask creditors to reduce interest rates and propose a repayment plan. However, he adds, seniors who depend on small Social Security checks and savings hit hard by the stock market find their options limited.

In the past, some tapped the equity in their homes. But with the housing market in the doldrums, that may not be an option. A September 2008 AARP study found that 684,000 Americans 50 or older -- 28 percent of all homeowners -- were delinquent on their first mortgages, were in foreclosure or had already lost their homes.

''Because the equity value of homes has dropped so much, we can't use reverse mortgages as often as we used to,'' Prager said. ``We're literally flooded with clients in foreclosure or about to go into foreclosure.''

At Consumer Credit Counseling, a senior citizen filing for bankruptcy is offered a bankruptcy education class and told to visit an attorney for legal advice. Emotional support is often required, too. ''It's very hard for them at this point in their lives to deal with having to declare bankruptcy,'' Franco said. ``It can be very embarrassing. Many Latinos don't even want to talk about it.''

Timothy Kingcade, a bankruptcy lawyer with Kingcade & Garcia, said his clients often break down and weep in his office. ``It's very traumatic for them. It's not what they expected in their golden years.''

Their unpaid debt, he adds, usually starts off as a small figure. After several months, however, it can add up to tens of thousands of dollars.

''What I see a lot of are seniors using their credit cards for prescription drugs,'' he said. ``They need their medicine so they worry about paying it later. But even if you're only charging $200, $300, $400 a month, it adds up. It's not long before they're in a lot of trouble.''

TOO MUCH DEBT

Abrahantes' problems started when he was in an accident and was unable to pay the $1,000 deductible on his damaged pickup truck. When he could no longer afford the payments, the bank repossessed the truck. Then Abrahantes developed an infected boil that had to be removed. The bill: $40,000. Abrahantes did not have health insurance or Medicare.

Calls and letters from creditors became too much for Abrahantes, so he filed for bankruptcy.

''If I were 30, it would be different,'' he said. ``I could get myself out of this hole.''

Medical-related financial debt can be particularly problematic for seniors who are uninsured but not old enough -- or poor enough -- to receive government help, said Dave Certner, AARP's legislative policy director. He singles out the ''pre-Medicare'' age group -- 55 to retirement -- who may be an injury or illness away from financial ruin. ''If they don't have insurance through an employer, they find it hard to get affordable insurance on their own or [a policy] that doesn't disqualify them for all these pre-existing conditions,'' Certner said.

More pre-retirement workers are faced with this problem as cost-cutting employers drop insurance or lay off older workers, he adds.

JUGGLING EXPENSES

But not all senior citizen bankruptcy is due to healthcare costs. Patrick Cordero, another bankruptcy attorney in Miami, said about 60 percent of the elderly clients he sees are simply in over their heads: Income doesn't cover living expenses.

''One month they pay the electric bill but not the phone,'' he said, ``The next month they pay the phone, but not the electric bill. That goes on until they can't juggle it anymore.''

The reason? Lack of planning for retirement. In other words, some people are outliving their savings.

''Now, more than ever, you have to be prepared for retirement because that's the one thing nobody is going to finance for you,'' Kingcade said. ``When planning, you have to build in the possibility of an expensive long-term illness. You better have a good game plan.'' 

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