Older Americans in financial distress can be helped by bankruptcy

Increasingly, older residents are running up debt simply trying to survive. According to The New York Times, many retirees are resorting to high-cost pension advances to pay down credit card debt incurred for everyday living expenses. In many cases, filing for bankruptcy may be a preferable strategy.

Baby boomers strapped for cash

When the bottom fell out of the housing market a several years ago, baby boomers were just beginning to hit retirement age. Quite a few boomers were left with no safety net when their investments lost most of their value.

To get by, many retired baby boomers began to use credit cards extensively. Federal Reserve numbers indicate that debt for households headed by 65- to 74-year-olds is growing faster than for any other age group.

The U.S. Census Bureau reports that the median debt level rose substantially from 2000 to 2011 for Americans in households with heads aged 65 and up. In 2000, median debt for this group was $12,000, and it more than doubled to $26,000 in 2011. By 2012, credit card debt alone amounted to an average balance over $8,000.

Pensions are likely to be a major asset, and so-called pension advances might look like an attractive source of funds to use to pay the credit card bills. However, companies that aggressively promote these pension advances are actually offering loans that provide for repayment out of pensioner's monthly checks. The New York Times found that annual interest rates for these loans typically range from 27 to 106 percent, and the loan agreements do not reveal these interest rates. Pensions can soon be gutted while the debt burden skyrockets.

Bothered by debt collectors

Debtors might take out the ill-advised pension advance loans because of relentless collection efforts by debt collectors. It is distressing for Americans in their 60s and 70s to find they are struggling financially and plagued by collectors, at a time when they hoped to be enjoying a secure retirement.

The law affords some protection from the worst debt collection practices, though obtaining relief from harassment is not going to make the debt go away. The Ohio State Attorney General reminds residents that the federal Fair Debt Collection Practices Act and the Ohio Consumer Sales Practices Act constrain debt collectors from some specific collection practices.

For example, debt collectors may not continue to contact a debtor after the debtor sends a letter to the collection agency asking for no further contact. Also, debtors can ask not to be called at work.

Debt collectors are forbidden to call before 8:00 am or after 9:00 pm. They are not allowed to misrepresent the amount owed, to give the false impression that they represent the government, to issue threats or to publicly expose the names and debt balances of debtors.

Bankruptcy as a solution

It is wise for anyone overwhelmed by debt to talk with a bankruptcy attorney before resorting to pension advances or other high-cost short-term solutions. Bankruptcy can give people who were hurt by the economic downturn a fresh start, while allowing them to hold on to some of their hard-earned assets.