Bankruptcy Increasing Among the Elderly Due to Healthcare Costs

Bankruptcy by the elderly is rapidly increasing and a major cause is health care costs. A study by Professor John Pottow at the University of Michigan Law School found that between 1991 and 2007, bankruptcies by consumers aged 65 to 74 increased by 178 percent. Health care is a major expense for consumers in this age group and medical costs have risen at a rate faster than regular inflation. A study by researchers at Boston College's Center for Retirement Research found that a typical couple aged 65 can expect to spend $197,000.00 in lifetime health costs not covered by insurance. If long-term nursing care is factored in the expected cost rises to $260,000.00. Five percent of consumers in this age group can expect to incur uninsured medical expenses of $570,000.00.

It is no surprise that most consumers do not expect or plan to incur these tremendous medical costs. For individuals on fixed incomes, these unplanned out-of-pocket bills can deplete vital retirement accounts and may force many to seek the protection of bankruptcy.

What can you do to avoid being sunk in retirement by out-of-control medical expenses? First, plug the gaps with insurance. Carefully examine your health care coverage, identify holes in coverage and buy supplemental insurance. If you have a significant retirement nest egg, consider buy long-term care insurance to cover nursing home care. Second, carefully consider out-of-pocket expenses. When you buy insurance, make sure you understand the coverage and what expenses you must pay. Third, save for health care expenses. A good retirement plan must account for these expenses. Finally, do not expect that you will always have good health. Almost without exception, we can all expect to need more health care as we grow older. By buying gap insurance early, you can save money on premiums rather than waiting until you actually need the insurance.

Supreme Court Considers Applicability of Auto Deduction

On the first day of argument for the term, the U.S. Supreme Court considered whether a consumer debtor in Chapter 13 could take an automobile expense deduction where he did not have a car loan or lease payment. In Ransom v. FIA Card Services, N.A., creditors want to disallow vehicle credits for those who own their cars, thereby, increasing monthly plan payments. There is a split among the circuits on the issue; the Fifth, Seventh, and Eighth Circuits have allowed the deduction where the Ninth (in this case) has outlawed it.

For consumers, the result could be a greatly increased monthly plan payment under Chapter 13. If the Supreme Court rules that the deduction is not available, the amount of the deduction, which is determined by the IRS would become "disposable income" under the plan and the debtor would be expected to pay that amount to creditors. Of course, this punishes thrifty debtors who pay off their cars and rewards spendthrifts who pay for their cars on credit or by lease.

We will watch for a ruling on this issue. A opinion is not due for several months.

Jason Ransom filed bankruptcy under Chapter 13 and claimed the standard deduction from disposable income under the law. In objecting to Mr. Ransom's proposed bankruptcy plan, the bankruptcy trustee claimed that the debtor could not take the deduction where he owned the vehicle outright and, therefore, had no monthly loan or lease payment. Mr. Ransom lost on the issue before the bankruptcy court and ultimately, before the Ninth Circuit Court of Appeals.