Special Issues in Gray Bankruptcies
The combination of a longer lifespan and rising medical expenses has caused gray bankruptcies (the debtor is over 60) to rise 70 percent since the 1990s. Most 70-year-olds can now expect to live another ten or fifteen years. Their financial assets often cannot last that long. Furthermore, even if a person has Medicare, chronic illness treatments, like diabetes treatments, could easily cost tens of thousands of dollars.
Bankruptcy meets these needs. Chapter 7 discharges unsecured debts, such as medical bills, in as little as six months. Chapter 13 provides long-term protection against aggressive creditors and gives people control over their own finances. Because over-60 bankruptcies have special priorities, a good Chicago bankruptcy lawyer must account for these differences and enable gray bankruptcy debtors to maximize their fresh starts.
Home Equity
Many older people have lived in their homes for more than ten years. As a result, they often have substantial home equity. Before 2026, a Chicago bankruptcy attorney relied on loopholes and exceptions to protect such equity in bankruptcy. But the law changed significantly in January 2026.
Before this change, state bankruptcy exemptions (which all filers must elect in Illinois) protected only $15,000 of home equity ($30,000 for joint filers). In January 2026, these exemption limits catapulted to $50,000 ($100,000 for joint filers).
The law also changed the definition of a homestead. Instead of the narrow definition in the old law, the new law applies this coverage to:
- Houses,
- Condominiums,
- Mobile homes,
- Cooperative apartments, and
- Rural farms or land.
The exemption is available for owner-occupied property. Rental properties, even if previously occupied, are usually ineligible.
The aforementioned exemptions and loopholes are still available. The best interests of creditors rule is a good example.
Frequently, a homeowner is just over the exemption limit. However, the exemption number doesn’t tell the whole story. The trustee (the person who oversees the case for the judge) must pay substantial costs, such as cleaning fees and auction fees. After paying all this money, the creditors might go into the red on the deal. As a result, a seizure is not in their best interests and therefore illegal in Illinois.
Social Security
Social Security benefits are generally fully exempt in bankruptcy. Creditors and bankruptcy trustees typically cannot take them to pay debts. This protection applies to both Chapter 7 and Chapter 13 debtors. 42 U.S.C. § 407 specifically states that Social Security benefits cannot be transferred, assigned, or seized by creditors in most situations.
The bankruptcy exemption applies to benefits administered by the Social Security Administration, including:
- Retirement benefits,
- Social Security Disability Insurance (SSDI),
- Supplemental Security Income (SSI), and
- Survivor benefits.
These payments are protected both before and after you receive them, as long as they remain identifiable as Social Security funds.
Commingling could be an issue. If a bank account contains exclusively Social Security funds, the trustee typically cannot seize that money. However, it’s best to keep Social Security benefits in a separate bank account. Mixing them with other funds may make it harder to prove the money is exempt.
Federal banking regulations may come into play. Banks must protect two months’ worth of Social Security benefits from garnishment if the funds are directly deposited. This rule helps ensure recipients still have access to their income.
However, once funds are withdrawn or transferred, proving they are Social Security benefits may become more difficult.
Work With a Detail-Oriented Cook County Lawyer
No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced debt reduction attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After-hours and home visits are available.
Source:
nytimes.com/2018/08/05/business/bankruptcy-older-americans.html
