Proposed Help For Bankrupt Seniors
One Galesburg couple in their 70s racked up $130,000 in credit card debt, largely due to health care. They sought advice, worried that their hard-earned savings, modest house and 20-year-old car would be wrenched away by creditors.
Fortunately for them, bankruptcy attorney and Rep. Alexander Lipsey, D-Kalamazoo, persuaded creditors that “it didn’t make sense to throw this couple out on the street.”
Lipsey, who served as a bankruptcy trustee before he entered the Legislature, is now setting his sights on helping other Michigan seniors who confront unmanageable debt “to give them a break.”
Lipsey has introduced a package of bills that would modernize the state’s bankruptcy procedures, which have remained virtually unchanged for more than 100 years.
The most important aspects of his proposals, Lipsey said, are the updated protections afforded to consumers — especially seniors and people with disabilities — and a strengthening of pension protection.
A group of lawyers representing debtors and creditors worked with bankruptcy trustees for a year and a half to come up with these suggestions, Lipsey said. “It feels really good that it’s gone through this kind of scrutiny.”
Several state financial services and business organizations, including the Michigan Credit Union League, the Chamber of Commerce and the Michigan Retailers Association, said they are reviewing the proposals but have not yet taken a position.
The bills would increase the amount of assets a bankrupt person can keep, such as personal property, household goods and furniture, jewelry, an automobile and a computer. That may help them hang on to their most hard-earned property when creditors come to collect, Lipsey said.
The measures would increase the value of real estate equity seniors could keep from $30,000 to $45,000, making it more feasible to keep their homes.
“A lot of seniors have lived in their homes longer, and in recognition that a lot of the problems that seniors face go back to their health issues, we wanted to add a measure of protection for those who through no fault of their own are finding that they’re having financial problems,” Lipsey said.
Lipsey’s proposals also would strengthen protection of a bankrupt person’s pension, such as an Individual Retirement Account or a 401(k) plan.
While bankruptcy is typically a matter of federal law, Michigan allows debtors to choose between federal or state exemptions. Lipsey’s bills would expand state exemptions.
Cosponsors include Reps. Steve Bieda, D-Warren; Steve Tobocman, D-Detroit; Stephen Adamini, D-Marquette; Matthew Gillard, D-Alpena; Edward Gaffney, R-Grosse Pointe Farms; and Charles LaSata, R-St. Joseph.
The bills are in the House Judiciary Committee. No hearing date has been set.
American seniors are increasingly retiring with outstanding debt, according to study conducted by Demos, a non-partisan public policy group in New York. From 1992 to 2001, people 65 and older have accumulated an 89 percent increase in credit card debt.
“With virtually all medical expenses now payable by credit card, there is evidence that deductibles, co-pays, dental and vision care, prescription drugs and other uncovered costs played a significant role in the increased credit card balances of many older Americans,” the Demos report stated.
Elder Law of Michigan, a free, statewide legal hotline for seniors, receives frequent inquiries concerning debts.
Robert Carowitz, the hotline’s lead attorney in Lansing, said, “Some people don’t really have the stomach to live with debt, and bankruptcy can get rid of that constant anxiety.” But, he warned, bankruptcy is not “a viable option” for everyone.
Carowitz agreed that medical expenses and prescription drugs pose a major financial problem for seniors, especially for those without supplemental insurance policies. “Some people will take cash advances on their credit card in order to buy medication and then get into a real hole credit-wise,” Carowitz said.
“We often tell people that if you can’t pay on a debt, the smartest thing you can do is to write a letter to the creditor and tell them that. Tell them why you can’t pay and give them some notion of what your life is like, what your bills are and if you have health problems. The creditor might realize that you’re a debtor who he or she won’t get anything out of.”
In those situations, Carowitz added, “the creditor is really at the debtor’s mercy rather than the other way around.”
The Elder Law hotline is (800) 347-5297.