Bankruptcy and Retirement

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Cossitt Law Editor comments: This post is based on a post that came to us via Cathy Moran, California Bankruptcy Lawyer   and addresses how older Americans in serious debt can still plan for a comfortable retirement. Get rid of the debt you might never be able to repay so you can get a fresh start now and start saving for future retirement.

Regardless of your age today, someday you will want to retire. Further, you want that retirement to be comfortable and stress free.

So, what have you saved to make that retirement happen? More than 30% of Americans have saved less than $25,000 for retirement. And an increasing percentage of us are living into our 90′s.

To my mind, the needs of retirement are one of the most compelling reasons to seriously consider bankruptcy. If you are making no progress in paying down credit cards, chances are your future ability to retire that debt is no better than your success in the past.

Take a look at the exercise I did earlier here looking at paying your way out of debt. Look at the wildly different outcome on retirement security if you ditch the debt and put what you are spending in minimum credit card payments monthly into an IRA.

I’ll give you a sneak peak: if your credit card debt is “only” $20,000 and the interest rate on that balance is “only” 18%, it takes more than 37 years to pay off the credit card. Put that same amount of money monthly in an IRA, and in 37 years, you have a retirement kitty of $317,000.

Being debt free in 37 years is cold comfort if you are living on Social Security alone, or compelled to live with family because you can’t afford to maintain your independence.

The financial press is full of discussions of saving and retirement. For many people, that saving can be made possible only by shedding debt that they can never, realistically repay. The most recent recession hit many folks in their 50’s very hard and left them with massive debts. Some of them have held on and, now as the economy is slowly turning the corner, they are motivated to pay their debts.

But they cannot do both: these folks do not have enough time or earning power left to both retire debt and plan for a sound retirement. If they do one, it will close the door on the other due to the limited time left in the work force. There is no right or wrong answer to this dilemma — it is a choice driven by personal values. My job, as a lawyer, it to present legal options, discuss the pros and cons of those options (including the economic implications) with you to the extent necessary to confirm my clients are making informed choices.

And my job is to respect your choices, as long as I am satisfied I have explained them fully and your choices are informed choices.

That said, I do make recommendations. And my recommendation, along with my friend Cathy Moran, is: “Get real, today, about your money so you can retire in the future.”

Bankruptcy is not just an escape from the past, it is the door to a better future, if you take it.

Contact Cossitt Law for guidance on how your debt may affect your retirement. Bankruptcy may be a viable option. Whether facing creditors outside of bankruptcy or contemplating a future bankruptcy, the legal experts at Cossitt Law know how to use all the various tools to design a debt relief strategy to meet your goals.


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