Recent study calls it a “coming storm of broke elderly”
The definition of bankruptcy is given as “legal status of a person or other entity that cannot repay debts to creditors.” In most parts of the U.S., bankruptcy is imposed by the court after a petition by the creditors. All over the country, thousands of people file for bankruptcy daily as a last resort after failing to live up to the financial burdens imposed upon them.
But a worrisome trend that has been highlighted closer to home is the fact that a more significant number of older American citizens are beginning to file for bankruptcy at a rate that is more than double what it was 25 years ago. This trend was highlighted by a study that was published by the Social Science Research Network.
The research
Referred to as a “coming storm of broke elderly,” the study was able to identify that the rate of citizens over the age of 65 who are now filing for bankruptcy increased about 204% from 1991 to 2016. The study also pointed out that the number of older citizens among the total number of all individuals who filed for bankruptcy increased five times within the same 25-year period.
Now social scientists are studying the data pulled from the Consumer Bankruptcy Project, and so far, they have been able to discover that this increased trend of bankrupt seniors is caused in part by the extremely high health care costs, in addition to the lower incomes they receive and the nationwide decline in pension fees.
One of the authors behind the study is Deborah Thorne, a researcher from Idaho that said “it is not an individual’s fault” when they have to file for bankruptcy mentioning the issues with the current retirement systems and Medicare.
She went on to mention that her research discovered that a large number of older adults who are struggling with finances believe the government is doing nothing to deal with their situation.
“We’ve become uncaring about what they’re confronting,” she said.
Why bankruptcy has increased
The study also went on to point out that the cost of taking care of medical issues is a common theme recurring within the majority of elderly bankruptcy filers. Thorne believes that although Medicare provides an excellent cover for older people’s health costs, it does not cover everything ranging from extensive care, hearing aids, a lot of dental procedures, eye exams used to prescribe glasses and foot care.
Medicare sometimes also involves copays, coinsurance and some deductibles that are sometimes difficult for some seniors to afford.
Speaking to Thorne and her team, an older adult who had filed for bankruptcy before said, “my bankruptcy started with back surgery. I had several medical tests that my insurance did not cover. This caused me to fall behind in my medical payments. The next thing I knew, the bills began piling up. I got to the point I owed more than I was making on Social Security.”
These medical issues could also cause many older adults to lose their job, complicating their already terrible financial situation.
“My wife developed medical problems and had to leave her job, resulting in a loss of income. About two years later, I developed medical problems and was not able to continue working,” another respondent told the study’s authors. “We got to a point where we simply could not handle the debt load. The constant calls from bill collectors forced us to contact an attorney for help.”
According to nonprofit organization Kaiser Family Foundation, out-of-pocket health costs for elderly Americans who use Medicare consumed up to 41% of the average social security income in 2013. The organization also expects the costs are also expected to increase to 50% of the average social security income by 2030.
Other finance retirement experts also agree with this assertion that it is important for older Americans to factor in health costs into their retirement plans. Financial services company, Fidelity Investments backed this up with a statement that read “A 65-year old couple retiring this year will need $280,000 to cover health care and medical expenses throughout retirement”.
And although that is simply a 2% increase from last years cost, it is important to note that Fidelity’s estimate has risen by 75% since 2002 when the estimate recommended by the firm was just $160,000.
This is why older citizens who are unable to pay up such amounts of money are most likely to go into debt. A study done by the National Council on aging found that medical debt is one of the more important obstacles between older citizens and economic well-being.
According to the council “over half indicated that medical debt was the most significant barrier to the economic well-being of seniors, while nearly 20% said that missed utility payments were the biggest problem.”
What else leads to bankruptcy?
But going into bankruptcy is not a straight road. In fact, a lot of people who go into bankruptcy struggle with paying bills for a few years. According to bankruptcy lawyer Charles Juntikka, there has been a staggering increase in older clients during his 34 years of practice.
A lot of them are often hesitant to file for bankruptcy because they happen to be brought up by parents who survived the Great Depression; which is why many of them opt to pay their medical bills or mortgages with credit cards piecing together minimum payments of $80 – $90 on their cards without seeing any substantial reduction in their principal balance.
He said, “the problem with my older bankrupt people is they paid for years, but the principal on the credit cards barely budges. Many think that only “crooked” businesses go bankrupt, but decent people pay their bills.
After struggling and failing to get over the surmounting debts, there is usually a trigger that forces them to reach out to a bankruptcy lawyer like Juntikka, and it is often the threat of a creditor to sue.
The authors of the report have continued to advocate aggressively for hands-on supporting pension and safety net programs that reference health care support to help secure the financial safety of several older Americans.