Bankruptcy in Your Golden Years: What Seniors Should Know

 Posted on July 08, 2025 in Bankruptcy

The financial risks associated with aging include reduced income, increased healthcare costs, and credit card debt, not from buying fun or frivolous items, but from charging necessary living expenses. The representation of older Americans among those likely to file for bankruptcy has never been higher.

In fact, there has been a five-fold increase in the percentage of older individuals filing for bankruptcy over the past few years. We expect that growing older will bring peace of mind, not financial panic. Unfortunately, many Texas seniors face overwhelming debt, primarily from medical bills, credit card debt, student loans, and providing financial assistance to loved ones.

Many seniors feel as though bankruptcy is a failure after spending their entire lives working and paying their bills. Yet for many seniors, bankruptcy can offer real relief and a pathway to a more secure future. If you are a senior citizen facing financial hardship in your golden years, it is important that you consult with a knowledgeable Liberty County, TX bankruptcy attorney.

Bankruptcy Options for Seniors

Chapter 7 bankruptcy is the most common form of bankruptcy and can protect at least some assets through exemptions. At the end of the process, eligible debts are discharged. Seniors must pass the "means test" to determine whether they are eligible for Chapter 7 bankruptcy.

Older adults with limited income and few assets may be eligible to discharge credit card debt, medical bills, personal loans, and, in some cases, student loan debt through Chapter 7 bankruptcy. Chapter 13 is less likely to be a good option for seniors, as it requires reorganization of debt and a repayment plan that lasts three to five years, and a steady income.  

Medical Debt as a Significant Driver of Bankruptcy for Seniors

Healthcare debt is a widespread problem in the United States, with two in five U.S. adults (41 percent) of all ages reporting some type of medical or dental debt. Among seniors with healthcare debt, most of the medical bills that caused the debt were due to routine healthcare services, such as lab fees, diagnostic tests, and doctor visits (49 percent).

A nearly equal amount was attributed to serious illnesses and hospitalizations. About three in five elderly adults with healthcare debt say they have delayed or skipped healthcare and prescription meds due to cost in the past year. Wiping out medical debt is a compelling reason for seniors to consider filing for Chapter 7 bankruptcy.

Will You Lose Your Home?

Because many seniors may have significant equity in their homes, they may worry that exemptions will not be sufficient, resulting in the loss of their homes. Texas allows bankruptcy filers to use either the federal exemption system or the Texas state exemption system.

The federal homestead exemption is $31,575, while under the Texas property code (Section 41.001), the Texas homestead exemption is unlimited for a primary residence with no more than 10 acres for urban properties and 100 acres for rural properties. The Texas homestead exemption requires that the filer is current on their mortgage and has owned the home for at least 40 months.     

What Happens to Social Security, Pensions, and Retirement Accounts in Bankruptcy?

The good news is that almost all tax-exempt retirement accounts, including defined-benefit plans, profit-sharing, 403(b)s, and 401(k)s, are exempt during a bankruptcy filing. IRAs and Roth IRAs are protected up to a certain amount.

Withdrawing money from a retirement fund is not a good idea, as the withdrawals are treated as income for qualification purposes once withdrawn, losing their protected status. Social Security benefits are exempt, provided they remain in a separate fund and are not commingled with other funds.

Contact a Montgomery County, TX Bankruptcy Attorney

Filing for bankruptcy later in life is not easy, but in some cases, it can be the most practical choice. With the right guidance, Texas seniors can protect their dignity and certain assets while alleviating crushing debt. If you are a senior facing financial hardship, speaking to an experienced Houston, TX bankruptcy attorney from The Fealy Law Firm, PC can make a significant difference. Our focus is on helping good people through hard times.