Scared You’ll Outlive Your Savings?

Man looking into empty wallet
Created by Martha Jarrett using Bing Image Creator

Yes, retirement can be scary, particularly if you’re not rich.

Since most of us aren’t rich, and can’t live on Social Security, we could outlive our savings. Keep in mind that when Social Security was established in 1935, the average life expectancy was less than the retirement age of 65 (60 for men; 64 for women). It’s now 79 (the stats are no longer broken out by gender). With the aging of the US population, most of us have a lot of years left if we retire at 65. So, our retirement plans and savings have to go a lot further.

A few things you can do if you haven’t retired yet

You’ve got a lot more options than those of us who’ve already retired. The most obvious option is to keep working as long as you can. If you don’t want to work full-time, and it’s an option, cut back on the number of hours you work. And while you’re at it, keep saving and doing all the other things that financial planners tell you to do to get ready for retirement.

Here are a few of my suggestions:

· Pay off your mortgage

· Pay off your credit cards

· Pay off your car

· Downsize

· Move to a less expensive area

· Save more

· Contribute as much as you can to your 401(k), IRA, etc.

· Cut back on your discretionary spending (so you can save more)

If you see a pattern to these suggestions, it’s intentional. Getting ready for retirement means eliminating as much debt as you can and saving as much money as possible. If the two sound incompatible, they’re not, if you start early enough. Work on reducing debt first; then save. There are plenty of financial advisors around who will help you invest those savings. Consult with someone you trust. Since I don’t always follow my own advice, I won’t try to give you any.

What are some options if you’ve already retired?

Lots of retirement advisors out there tell you not to worry if you need more money after you retire from your full-time job. They’ll say you can always get a part-time job. Really? Have they tried? I have. I retired from the practice of law about 8 years ago and when I decided late last year that I needed a little extra money, I re-activated my law license, started applying for part-time legal jobs, and ran straight into a brick wall.

It may be illegal for employers to ask how old you are, but there are lots of other ways they can get a pretty good idea about your age. If you get as far as an interview (unlikely), all they have to do is look at you. Before you get that far, they’ll see your resume. Even if you leave off the year you graduated (advice from one job board), and don’t mention your retirement, your experience gives you away.

I don’t necessarily blame employers for not wanting to hire me (or anyone else over the age of 55). Realistically, how long can they expect us to keep working? The chances of our dropping dead from a heart attack tomorrow are a lot higher than someone in their 30s or 40s. And there is some investment of time and money when you hire someone. Maybe not as much as employers would have you believe, but it’s not nothing. So, whether or not it’s legal, ageism is real.

The other side of the coin is that there are a lot of other people out there looking for the same jobs you are. And most of them are a lot younger. When you look at a job listing and see that it’s already got over a hundred applicants, why bother? As for me, I’ve got better things to do with my time.

Life has a way of throwing you curve balls when you least expect it.

I retired a few years ago thinking I had enough money to last the rest of my life. But things didn’t go like I’d planned.

First, my husband died. He had a little life insurance so there wasn’t any immediate impact. Not financially, anyway. Grief takes its own toll. But I had to start paying all the bills and I no longer had his Social Security benefits added to mine. (For those of you that think you somehow get to keep receiving your spouse’s benefits, think again. That’s not how it works.)

Then I got sick. Again, since I was already retired, that didn’t affect my income. And because I have a Medicare Advantage Plan (an HMO), my illness was covered, except for a few minimal co-pays.

Next COVID hit and the stock market took a nose dive. What was once a pretty healthy IRA began to look a little shaky. And I began to get a little worried.

I held my breath until the market came back. But how many downturns can my IRA and I survive? The past year has been pretty rocky in that regard.

So, if you’re retired, like me, what can you do to ensure your money lasts through all of life’s ups and downs?

I could be a bit flippant and say, just spend less. But with inflation going up (and then up some more), you’ll probably just laugh. A budget would, nonetheless, not be a bad place to start. Once you know what you’re spending, and what you’re spending it on, you can look for places to cut back.

Stay healthy. And insured. Without good health insurance, an illness can take a major toll on both your body and your bank account. I’ve had good luck with Medicare HMOs, but I know people who hate them, so I won’t try to convert you. But if and when you get seriously ill, you might consider switching to one during the next enrollment period. Historically, medical care is one of the biggest expenses during retirement and HMOs are one way to avoid a lot of the expense.

Some of the things I’ve eliminated are subscriptions (everything from newspapers to streaming services) and contributions. If you’re like me and can’t conceive of not supporting your favorite candidate or your public radio station, at least think about cutting back on the amount you give each year.

I also haven’t bought much in the way of clothes in a couple of years. And while I do regret giving away some of my professional clothes now that I might need them, I haven’t missed the newest styles. Or the credit card bills that came with my shopping sprees.

Eating out is a big one for me. If you think the effects of inflation are bad at the grocery store, take a look at restaurant prices. Yikes! Eating at home can make an enormous difference, at least if you like to cook, like I do.

On the income side, consider a side hustle. If you don’t know what that is, do a little research. For us older folk, it’s really just starting your own business, usually from home and usually without much up front investment. But in today’s gig economy, it’s a lot easier (and less expensive) than it used to be.

I’ve developed a few side hustles

First, I started this website giving free information about bankruptcy. I’d like to see it generate some legal business for me, but that’ll take awhile. First, people who are having financial problems have to find my website. I’m working on that now but I hear I should consider it a marathon; not a sprint.

While I was busy working on finding legal clients, a friend asked me if I would be willing to cook her meals if she paid me? So, I’m now a personal chef! Not only is it helping me pay the bills, but I’m eating a lot better. It’s true what they say about cooking for one person. I’ve got two clients (or are they customers?) and I’m having a lot of fun. But it does take a lot of time away from other things.

I’m also doing some writing. Mostly blog posts and writing for Medium (where this article is also published). I found Medium when I was trying to find freelance writing work. As an attorney, I spent a good part of my career researching and writing (it’s not all courtroom drama), so I figure I can also write for fun and profit. I’m just getting started, but it’s coming along.

So where does that leave you?

Depending on your circumstances, you may have some of these options for how you survive your retirement years:

· Move in with your kids — I should probably list this one last because, for most people, it is the least attractive option

· If you own a home and have enough equity, consider a reverse mortgage — be sure and talk to an expert because a lot of what people say about the risks is not true

· Move somewhere to be closer to family and/or friends (may or may not have an impact on your finances)

· Downsize into a less expensive home or geographic area

· Become a nomad (I don’t recommend doing it in a van)

· Sell your house and live off the equity (you shouldn’t do this one until you’ve consulted an expert on reverse mortgages)

· Find a roommate (it’s not just for twenty-somethings)

· Assisted or quasi assisted living (if you can no longer live on your own and you can afford it)

· Find a side-hustle — another name for starting your own business

· And, along the lines of “do as I say and not as I do,” don’t sell your home and buy something more expensive with a bigger mortgage and a higher interest rate.

These are some of my thoughts. But I’m not an expert, so before you rely on anything I’ve said, you should consult someone who is an expert.

I’d love to hear your thoughts and ideas so please reply and let me know what you think. If you enjoyed this article, please follow me so you can see what else I have to say.

How Does Chapter 13 Work?

Chapter 13 bankruptcy is a reorganization plan for individuals. It uses your disposable income over a three to five year period to pay some or all of what you owe to creditors. As you will see below, it’s a complex proceeding and is difficult to complete without the assistance of an attorney.

Why file a chapter 13 instead of a chapter 7?

If you are not eligible to file a chapter 7 case because you don’ t pass the means test, you can file a chapter 13 instead.

Another reason to file a chapter 13 plan is if your home is in foreclosure. The bankruptcy filing will stop the foreclosure and give you time make up the back payments over the course of the plan (3 to 5 years).

A third reason for a chapter 13 is to protect a co-debtor (someone who is jointly liable for one or more of your debts). If the co-debtor is someone other than your spouse (who can file jointly with you), such as your parents, a chapter 7 will not stop the creditor from collecting from the co-debtor. If you file a chapter 13, the stay will prohibit the creditor from pursuing your co-debtor.

Chapter 13 may also be the best option if you have assets that exceed the value of the available exemptions, such as a home with a lot of equity. In that case, however, you will likely be required to pay your creditors in full because a chapter 13 plan requires that you pay your creditors at least as much as they would receive in a chapter 7 liquidation. If you are in this situation, the only thing that chapter 13 can do for you is give you time (5 years) to pay your unsecured and priority creditors and to bring any past due payments current.

Who is eligible to file a chapter 13?

Any individual is eligible to file a chapter 13 provided that their total secured and unsecured debts do not exceed $2.75 million (up to $465,275 unsecured and $1,395,875 secured). Obviously, this limitation does not affect most people considering bankruptcy.

How much money do I need to pay creditors?

A chapter 13 plan provides for the partial or complete payment of your unsecured creditors. While the determination of what you will have to pay is a bit more complex than I make it sound, essentially, your net disposable income (what’s left after payment of your normal and necessary expenses) must be paid to creditors over a 3 to 5-year period. If your income is below your state’s median income for a family of your size, your plan must be completed within 3 years (unless extended by the Court). If your income exceeds the median, you have 5 years to pay creditors. Certain priority claims, such as child or spousal support and tax claims, must be paid in full.

Completing a chapter 13 plan isn’t easy.

The success of a chapter 13 plan depends in large part on how good you are at living on a strict budget for an extended period of time. While you are in a chapter 13 proceeding, you MUST keep your plan payments and payments on any secured obligations such as your home and your car(s) current. If you can’t do that, your case will likely be dismissed or converted to a chapter 7.

What happens if I miss a payment or two?

If you miss a payment (or more), your trustee can ask the court to either dismiss your case or convert it to a chapter 7. Treat the trustee as your best friend. If you get in trouble, your trustee should be the first person you call. If you are trying your best, and you miss a payment through no fault of your own, most trustees will work with you if you show a good faith effort to make your payments. If something like a job loss prevents you from making your payments for an extended period, you can seek a plan modification from the Court. If the trustee is in your corner, it will likely be granted.

Will I receive a discharge?

Upon completion of all your plan payments, you will receive a discharge and your creditors will have been “paid in full.” That means that, whatever they were paid under your plan, the obligation is deemed paid in full and you will not owe your creditors anything further. If you brought your mortgage payments current under the plan, your loan will be reinstated and any defaults will have been cured.

What are the downsides to a chapter 13?

There are a lot of downsides to a chapter 13, including:

  • Whether your plan is for 3 years or five years, you will have to live on a very strict budget for that period (no frills).
  • You must make all your plan payments, as well as your secured payments on your car(s) and home, on time. Your plan payments are made each month to your trustee. Depending on your location, and the practices of your trustee, you will either make your house and car payments to the trustee or directly to your lender(s).
  • No new debt can be incurred while you are in the chapter 13 without consulting your trustee.
  • A trustee’s fee equal to 10% of your total plan payments is added onto the amount you pay under your plan.
  • Chapter 13 is a complex and complicated proceeding that is best handled with the help of an attorney, which will cost more than the attorneys fees for a chapter 7 filing.
  • Most people who file a chapter 7 feel a huge sense of relief immediately. In chapter 13, that relief doesn’t come until you have completed all of your plan payments.
  • Only about 40% of chapter 13 debtors complete their plan and receive a discharge.
  • If you fail to make your plan payments, your case can be dismissed, leaving you (once again) at the mercy of your creditors.

If I have a choice, should I file a chapter 7 or a chapter 13?

I am confident that I am not alone when I say that, if you are eligible to file a chapter 7, you are better off doing so. The only exceptions to that advice are the ones listed above.

As with all matters pertaining to bankruptcy, the U.S. Bankruptcy Court’s website contains a wealth of useful information. Check it out.

U.S. Bankruptcy Court Website

If you still have questions and would like to talk to me, fill out the Contact form and we can set up a free half-hour telephone conference.

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How Do I Pass the Chapter 7 Means Test?

What is the means test?

I decided that if I’m going to start helping people prepare and file a bankruptcy, I’d better see if I could figure out how to fill out the required forms and calculate the means test. I’m sure glad I did. It would be really embarrassing if I couldn’t figure it out. Well, it took me three tries, but I finally did it. Here’s some basic guidance.

First, if you don’t know what I’m talking about, the means test is something devised by an evil demon in an attempt to stop people from “abusing” the bankruptcy process. The idea is to stop people who have some disposable income available to pay something (even a little bit) to their creditors from discharging all their debts in a chapter 7 bankruptcy.

Once you take the means test, if it shows you have disposable income (more than is needed to pay your living expenses), you will have to file a chapter 13 (instead of a chapter 7). In a chapter 13, you must propose a plan to use that excess income to pay a portion of what you owe over 3 to 5 years. It’s a difficult process, to say the least, and the subject of a future post.

Step-by-step guide to means test

But back to the subject at hand. The means test. I’ll make it as simple as I can but you’ll have to spend some time plugging in your own information. First, you need to determine if your income exceeds your state’s median income. If it doesn’t, you do not need to complete the means test calculation. You’ll find your applicable income information at https://www.justice.gov/ust/means-testing. Go to the box that says “Data Required” for bankruptcy forms. Click on the “select options” button and select the top item (current date) and hit “go.” Under Section I – Census Bureau Data, click on “Median Family Income” and find the information for your state and family size. For example, for a family of four in California, the average median income is $134,146. If the income you list on your Schedule I (you’ll need to fill this form out as part of any bankruptcy filing) is less than the applicable listed income, you do not need to complete the means test. That’s good news for you.

You are also exempt from the means test if your debts are not primarily consumer (personal) debts. This exemption means that more than 50% of of your obligations were incurred in running a business. You are also exempt if you are or were engaged in “homeland defense” as set forth in Form 122A-Supp. If either applies, fill out Form 122A-Supp.

If you do need to take the means test, go to the Bankruptcy Court website (https://www.uscourts.gov/services-forms/bankruptcy) and open the Forms section. Download and print out Schedule I (your income), Schedule J (your expenses), and forms B122A-1 and B122A-2. Together, these forms are the “means test.” Open the Instructions. The instructions for the means test start on page 33.

Start with Schedule I (your income). Read the instructions on the form and fill it out. If you and your spouse are both filing bankruptcy, fill out both columns. Part 1 sets out the information regarding your employment; Part 2 sets out your gross income, deductions, and net income (you should find this information on your pay stub). Once your entered your employment income, then list any other sources of income such as rental income, alimony or child support, and government assistance.

When you are done with income, fill out your monthly expenses on Schedule J. For periodic expenses, such as medical and dental, or school supplies for your kids, figure out how much you spend in a year, then divide the number by 12 and enter that for your monthly expense.

Means test calculation

Now comes the hard part – the means test itself (Form 122A-2). Follow the instructions very carefully. Except for your actual mortgage payment (if any), this form uses a national average for your expenses in questions 6-7 and a local standard amount for questions 8-9. You’ll note that the form doesn’t tell you where to find this information so here is the website: https://www.justice.gov/ust/means-testing/20230401. For questions 6-7, click on “National Standards” in paragraph 2 and find the information for “food, clothing and other items” and fill in the number for your family size. Do the same thing in paragraph 3 for health care expenses (note that there different sections on the form depending on your age).

For questions 8-9 on the Form, click on the box in paragraph 4, then click on your state and hit “go.” Fill in the applicable information for questions 8-9 on the Form. Note that you’ll take the information off the website and fill in the box for question 9a. For box 9b, use the mortgage (secured creditor) amount from Schedule J, then subtract it from the number in box 9a and enter the number in 9c (if 9b is less than 9a, enter 0). Continue filling out the form.

For question 13 (your car(s)), follow the same procedure to get the Local Standard costs (box 13(a)) and the net vehicle expense (box 13(c)). Proceed to the end of the form by filling in the answers for questions 14-23.

Total all of your IRS allowed expenses in questions 6-23 and enter that number in box 24. If you have any of the deductions allowed in questions 25-31, add them up and enter the number in box 32. Complete question 33 and enter the total in box 33e. Read and answer question 34 (this amount is the total of your past due payment on secured obligations such as your home or car). Next (question 35) is the amount of any past due payments on priority claims such as alimony or child support.

Ignore question 36 for the moment and go to number 38 and enter the totals from questions 24, 32 and 37. Next, go to question 39 and fill in the totals from lines 4, 32 and 37. Add those numbers and enter the total in the Total Deductions box. In Part 3, enter the amount on line 4 on line 39a, and the amount in line 38 on line 39b. Subtract line 39b from line 39a and enter it on line 39c. Multiply that amount times 60 and enter the amount on 39d. Answer the questions listed on line 40 to determine whether you have passed the “means test.”

I said I wasn’t going to walk you through filling out the forms, but that’s pretty much what I just did. If you follow the steps and find that I’ve missed something, please leave me a comment.

What’s next?

If you passed the means test, you can complete and file your chapter 7 case. What happens if you did not pass it will be covered in another blog post.

Are You Eligible to File Bankruptcy?

bankruptcysage.com Martha Warriner Jarrett

The easy answer is “anyone,” but of course, it’s a little more complicated. Chapter 7 and Chapter 13 bankruptcies are available to most individuals (and are the most often used by individuals). Since this website talks mostly about individual bankruptcies (sometimes referred to as “consumer bankruptcies”), I’m going to confine this discussion to chapter 7 and chapter 13 bankruptcies.

Chapter 7

To file a chapter 7 bankruptcy, and discharge your unsecured debts, you either have to be exempt from the “means test,” or you have to pass it. If your income is less than the national median income, you are exempt and you can file a chapter 7.

Passing the means test demonstrates that even though you make more than the median income, your regular income is not enough to pay your ordinary and necessary expenses (it’s a bit more complicated but this is a good place to start). If you want to figure out if you qualify now (before you go any further), you will find the forms and instructions on the Federal Court website (www.uscourts.gov/forms/means-test-forms/chapter-7-means-test-calculation). You can also see my blog post on “How to Pass the Means Test.” If you have trouble filling out the form, or if you don’t pass the test, I am here to help you. Fill out the contact form and let me know how I can help.

Chapter 13

If you do not pass the means test, you may qualify to file a chapter 13 bankruptcy, which means that you will have to pay your creditors a portion of what they are owed, over a three to five-year period. I’ll go into more detail in a future blog post, but here are some of the reasons to file a chapter 13 (in addition to not passing the means test). If you are behind in your mortgage or car payments, a chapter 13 will stop any foreclosure or repossession and give you an opportunity to make up your back payments over the course of your plan. It will also give you some breathing room from being harassed by creditors. However, there are eligibility limits on the amount of debt that you can have if you file a chapter 13. At this time, you cannot have more than $465,275 in unsecured debt (credit card and other debt not secured by any assets) and $1,395,875 in secured debt (your home and car and any other debt secured by any of your assets). Most individuals who are not eligible to file a chapter 7 will be eligible to file a chapter 7.

What is Chapter 7

A chapter 7 bankruptcy is a liquidation proceeding. If you qualify, chapter 7 liquidates your non-exempt assets (most chapter 7 debtors do not have any non-exempt assets) and eliminates all of your dischargeable debts. If you have assets that are not exempt, the bankruptcy trustee is entitled to sell those non-exempt assets and use the proceeds to pay your creditors, pro rata.

The next question, of course, is “what are exempt assets?” First, “assets” means everything that you own, including your house, car, household furniture, clothes, retirement account or pension, artwork, and so on. All of your assets must be listed on your bankruptcy petition. The Bankruptcy Code and most state laws allow someone filing a chapter 7 to exempt certain of those assets, up to a certain value, and keep them after they receive a bankruptcy discharge.

Let’s take your house as an example. Right now, under the Bankruptcy Code, you can protect up to $27,900 in your home’s equity. That means if your house is worth $295,000 and you owe $279,000, you have $16,000 in equity and you can protect your house from being sold (assuming you continue making payments).

Most states have a separate set of exemptions that you can use instead of the Bankruptcy Code exemptions. California, for example, has a homestead exemption that ranges from $300,000 to $600,000, depending on where the home is located. Some states, such as Texas, have an unlimited homestead exemption (subject to certain qualifications).

Exemptions for other assets are set out in the Bankruptcy Code (and/or applicable state law) and are subject to cost of living adjustments each year. Currently, the exemption for an automobile’s equity is $4,450; for household goods, $700 per item or $14,875 total; and for retirement accounts, $1,512,350.

Once all of your assets are listed, your petition will list the exempt amount of each asset, along with any excess amount.

There are requirements for filing a chapter 7 bankruptcy. The means test is probably the most important requirement because if you don’t pass it, you are not eligible to file a chapter 7. You can find the means test forms and calculator on the Bankruptcy Court’s website: https://www.uscourts.gov/forms/means-test-forms/chapter-7-statement-your-current-monthly-income

If you are like most people, you are probably overwhelmed by all of this information. If you are, contact me for a free consultation.

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Best Reasons to File Bankruptcy

bankruptcysage.com Best reasons to file bankruptcy

Bankruptcy gets a bad rap in the press. Always has. Always will. But there are some good reasons to file bankruptcy.

Critics would have you believe that people who file bankruptcy intentionally max out their credit cards on luxury items, then file bankruptcy so they don’t have to pay anything back. While that undoubtedly occurs in a few cases, most bankruptcies are filed by hard-working individuals who have gotten in over their heads or had a run of bad luck. Sometimes it’s their fault; often it’s not.

Here are a few good reasons people file bankruptcy:

• Job loss
• Uninsured medical bills
• Business failure
• Lawsuit
• Automobile accident or other injury (whether or not you were at fault, if insurance does not cover everything, the balance is probably dischargeable)
• Tax debt (some tax debt is dischargeable, but not all)
• Student loans (you’ll have to demonstrate hardship to discharge some or all of your student loans)
• Inflation or insufficient income (at the end of the day, this is always the case, for one reason or another).

These are some good reasons to file bankruptcy, but watch out for the pitfalls. The biggest pitfall, of course, is the hit that your credit rating will take as soon as you file. But if you’re deep enough in debt to file bankruptcy, your credit rating is probably pretty low already. For most people, the fresh start that bankruptcy gives them can be an opportunity to start rebuilding their credit. Once you’re not juggling credit card payments, you can start living within your means and begin making payments on time.