Debts, bankruptcies rising among seniors

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Mark Miller

Soaring credit card debt and medical expenses sparked a major increase in the number of older Americans filing for bankruptcy in recent years.

A study of bankruptcy filings found that the average age of bankruptcy petitioners is rising, with the sharpest increase among those over age 55.

While older people account for a relatively small share of overall bankruptcy filings, the rates of increase are dramatic. For example, from 1991 to 2007, the percentage of bankruptcy petitioners age 65-74 rose 178 percent.

Those figures reflect trends before the recession began in 2008, so it’s fair to assume the situation has worsened in the past few years due to job losses and diminished retirement portfolios and housing equity.

High credit card debt

Professor John Pottow, an expert on bankruptcy law at the University of Michigan Law School, analyzed results of the Consumer Bankruptcy Project, which he describes as the largest national sampling of consumer debtors in the country. The data collected included a survey of 2,500 actual bankruptcy petitioners, and in-depth interviews with 1,000 debtors.

When asked about the primary cause of their bankruptcy filings, 67 percent of debtors over age 65 cited financial problems tied to credit cards, specifically fees and interest rates. That was significantly higher than the 53 percent of younger debtors who cited credit cards as a primary cause of bankruptcy.

Older petitioners also reported a much higher level of credit card debt — a median of $27,213 for debtors over age 65, compared with $15,499 for those under that age.

After credit cards, medical expenses were the most frequently cited cause of bankruptcy. Although Pottow didn’t gather details on the specific types of medical expense that led to bankruptcy, others have studied the financial pressure of medical expense in retirement.

The Center for Retirement Research at Boston College (CRR) reports that the typical married couple at age 65 can expect to spend $197,000 in lifetime uninsured health costs, including insurance premiums, out-of-pocket and home healthcare expenses.

That figure excludes any long-term care need. When nursing care is factored in, the typical cost rises to $260,000, with a 5 percent chance of hitting $570,000.

In the broadest sense, the credit card problems reflect the financial pressures older Americans are facing. “We’ve got a structural deficit where income is lower than expenses,” said Pottow. “Elderly Americans just don’t have enough money to support their current lifestyle — which is not extravagant. It’s bare bones.”

Reluctance to ask for help

But Pottow’s study also points toward some specific personal tendencies that may be pushing older people toward credit cards — even though the high interest rates on card balances and fees can crush household finances.

“Many resist the idea of asking family, friends or charities for help,” Pottow said. “And some are under financial pressure because they have been helping out their own family members. They want to do it on their own, and are too proud to ask anyone for help.

“But that’s also what makes the credit card attractive,” he added. “You don’t have to sit down and talk to someone and admit financial failure face to face. People are deluged with applications in the mail, and getting a card is easy.”

Another problem is access to other sources of financial support. “We asked people if they had a way to borrow $2,000 for a couple of months and they’d say that they didn’t. So that points to a diminished network of support, and perhaps isolation.”

Some statistics from Pottow’s study of bankruptcy petitioners that bring this into focus:

  • Only 23 percent over age 65 were comfortable asking others for help, compared with 36 percent of younger debtors.
  • Only 35 percent over age 65 did ask family members for help before filing, compared with 69 percent of younger debtors.
  • Just 3 percent asked a charity for assistance, compared with 11 percent of younger debtors.

The bankruptcy study comes amid other signs that older Americans are saddled with increasing debt loads. For example, 63 percent of people in their late 50s and early 60s are carrying mortgage and home-equity debt today, up from just 49 percent in 1989, according to the Joint Center for Housing Studies at Harvard University.

Mark Miller is the author of “The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living” (John Wiley & Sons/Bloomberg Press, June 2010). He publishes, featured recently in Money Magazine as one of the best retirement planning sites on the web. Contact him with questions and comments at:

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