Bankruptcy for Seniors: What Older Americans Need To Know

Should You File Bankruptcy as a Senior Citizen?

Filing bankruptcy is a big decision at any age, but it can feel especially hard if you’ve spent your life working hard and managing your money carefully. Still, if you're retired or living on a fixed income, even one major unexpected cost — like a hospital stay or long illness — can throw everything off.

💡 Chapter 7 bankruptcy may be worth exploring if your monthly bills are more than you can afford and if you don’t see a realistic way to catch up. Many seniors use bankruptcy to get relief from credit card debt, medical bills, or personal loans so they can move forward with less stress.

That said, bankruptcy isn’t always the right fit. If you own valuable property or assets, those might be at risk in a bankruptcy, depending on your state’s exemption laws. So it’s important to take stock of things like a home you have significant equity in, a large amount of savings, or other property.

The good news is that most retirement income, like Social Security and pensions, is protected from creditors, even outside bankruptcy. If that's your only income, you might be considered judgment-proof, meaning creditors can’t take your income even if they sue you.

To get a clear answer about whether bankruptcy makes sense for your situation, many people choose to set up a free consultation with a bankruptcy attorney. They can walk you through how the laws in your state apply to your income, property, and retirement accounts and help you make the best decision for your financial future. 

📌 Tip: Take a trusted friend or family member with you to your consultation so you have support and a second set of ears to help you remember and process the information.

What Are the Pros and Cons of Bankruptcy for Older Adults?

Like any major decision, bankruptcy comes with its pros and cons. Some of these are the same regardless of your age or life stage, but others are specific to seniors.

Pros of Filing Bankruptcy as a Senior

The biggest upside to filing Chapter 7 bankruptcy is that it can wipe out credit card debt, medical bills, and personal loans and give you a financial fresh start. This can be especially helpful if your debt was due to medical reasons, death, divorce, or other significant life changes that have passed.

Filing bankruptcy can also:

• ✅ Stop collections and lawsuits: Bankruptcy’s automatic stay pauses all collection efforts, wage garnishments, and lawsuits immediately.

• ✅ Protect retirement income: Most retirement income is protected during bankruptcy. This includes Social Security, VA benefits, and pensions.

• ✅ Reduce stress and anxiety: Many seniors feel immediate relief knowing creditors can no longer contact them or try to collect. Many people try to deal with the stress of debt for much longer than they need to! Don’t downplay the potential impact on your mental health.

Cons of Filing Bankruptcy as a Senior

Filing bankruptcy also has some downsides. One of the biggest potential downsides for older adults is the possibility of losing valuable property or assets like a home, car, or money in a savings account.

Most Chapter 7 filers don’t lose any property when they file (thanks to laws called exemptions), but if you’ve been working for decades to build financial stability, you’ll want to be sure to protect it.

Here are some other potential downsides:

• It doesn’t clear all debts: Bankruptcy won’t wipe out things like unpaid child support, alimony, certain taxes, or secured loans like mortgages.

• It can impact your credit: Bankruptcy can stay on your credit report for up to 10 years. If you're planning to borrow money again, this could make it harder. Though with some effort, you can increase your credit score after filing.

• It’s not always necessary: If all your income is protected and you have few assets, you may already be judgment-proof and safe from collection anyway. This isn’t exactly a downside, but it’s worth noting since bankruptcy can be time-consuming.

Signs That You Might Be a Good Fit for Bankruptcy

You don’t need to be an expert to start figuring out if bankruptcy might work for you. Start by looking at what kind of income you have, what you own, and what kind of debt you’re dealing with.

If you’re living on protected income — like Social Security, a pension, or VA benefits — and don’t own a home or have major savings, you may not risk losing anything in bankruptcy. Most states have exemption laws that protect basic property like clothing, furniture, and a modest car.

Many seniors in this situation are also considered judgment-proof. That means your income can’t be taken by creditors, even if they sue you. But that doesn’t always stop the calls, letters, or lawsuits. Some seniors choose bankruptcy simply to make the stress stop and wipe out old debt for good. (You can also tell the debt collectors to stop contacting you because you’re judgment-proof.)

If your debts are mostly credit cards, medical bills, or personal loans, and there’s no real way to pay them back, bankruptcy could give you a clean slate.

🧰 If you decide this is the right path for you, Upsolve may be able to help. Upsolve’s free filing tool allows you to prepare your forms for free.

Signs That Bankruptcy Might Not Be The Best Answer For You

Bankruptcy helps many people get a fresh start, but it’s not always the right tool — especially if you have valuable property or certain types of debt, as we’ve mentioned.

One big thing to consider is what you own. Every state has laws called exemptions that protect certain property in bankruptcy — like a modest car, household items, or some equity in your home. But if your home is paid off or has gone up in value over the years, you may not be able to protect all of it. The same goes for large amounts of cash or valuable assets that aren’t covered by exemptions in your state.

🪙 Retirement accounts like 401(k)s and IRAs are usually protected, but once you withdraw that money and move it to a regular bank account, it may no longer be safe from creditors.

Also think about the kinds of debt you have. Bankruptcy can usually wipe out credit cards, medical bills, personal loans, and collections. But it won’t help with debts like:

• Child support or alimony

• Most unpaid taxes

• Home equity loans or mortgages (if you want to keep the home)

• Some court fines or timeshare contracts

If most of your debt falls into these categories — or you have a lot of assets you want to keep — bankruptcy may not be your best option. Some people in this situation explore debt settlement or other alternatives instead. Read more in the What Are the Alternatives to Bankruptcy for Seniors section below.

Chapter 7 vs. Chapter 13: Which Is Better for Seniors?

Chapter 7 and Chapter 13 are the two main types of personal bankruptcy. Both can help you deal with debt, but they work in very different ways.

Chapter 7 is the most common type and is often the faster and more affordable option. It’s usually over in about 4–6 months and can wipe out unsecured debts like credit cards, medical bills, and personal loans. 

In Chapter 7, you don’t make payments to your creditors. Instead, any non-exempt property you own could be sold to repay some of your debt, but most people don’t lose anything because of exemption laws.

Chapter 13 is a repayment plan that lasts 3–5 years. It’s often used by people who have regular income and want to keep property they might lose in Chapter 7, like a home with a lot of equity or a valuable car. Chapter 13 can also help if you’re behind on mortgage or tax payments and need time to catch up.

👉 For many seniors living on fixed income with little to no assets, Chapter 7 is the more practical choice. But if you have income to spare and need to protect certain property, Chapter 13 might make more sense — though it comes with a longer time commitment and higher cost.

What Are the Alternatives to Bankruptcy for Seniors?

Bankruptcy isn’t the only way to deal with debt. Depending on your situation, one of these alternatives might work better:

• Debt settlement: You or a company negotiates with your creditors to settle your debt for less than you owe, usually in a lump-sum payment. This can be risky if you're using savings to settle or if the forgiven debt ends up being taxed.

• Debt management plan or credit counseling: A debt management plan (DMP) through a nonprofit credit counseling agency combines your debts into one monthly payment, often with lower interest rates and waived fees. This doesn’t erase your debt, but it can make it easier to manage.

• Doing nothing if you’re judgment-proof: If all your income is protected — like Social Security or pensions — and you don’t have assets creditors can take, you may already be judgment-proof. Creditors can still try to collect, but they can’t take your income. Some seniors in this position choose not to file and focus instead on protecting their peace of mind.

📌 Tip: If you are judgement-proof and you want creditors to stop contacting you, consider sending a judgment-proof cease and desist letter. Upsolve has a free template you can use.

When deciding what’s best, think about your goals: Do you need relief fast? Are you trying to protect a home or car? Are the calls and letters making life harder? The answers can help point you in the right direction.

Not Sure if Bankruptcy Is Right for You? Here's What to Do Next

If you’re feeling unsure about what to do next, you’re not alone! Plus, you don’t have to figure this out by yourself.

Here are three options for support and help:

• Set up a free consultation with a bankruptcy attorney. An attorney can explain how your state’s laws apply to your income and assets and help you understand whether Chapter 7, Chapter 13, or another option makes the most sense.

• Take Upsolve’s Chapter 7 screener to see if you’re a good fit for our free filing tool. Upsolve is a nonprofit, and we’ve helped over 18,000 people get rid of $850 million in debt.

• Contact a legal aid organization in your area. You can also look for nonprofits or community organizations that provide free or low-cost legal or financial help to seniors.