Bankruptcy Before Retirement: Why it Sometimes Makes Sense


A 52-year-old man had endured two divorces that left him essentially broke. He was left with no retirement savings, high debt, a low salary and no greater career prospects.

In cases like this, filing for an Arizona Chapter 7 bankruptcy may be the best option.

Cases like this aren’t isolated, particularly following the Great Recession. Many people were left upside down on their mortgages, laid off from jobs, deep into credit card and medical debt, and in marriages that crumbled under the weight of all those stresses.

A recent national magazine headline cheerfully announced, “It’s never too late to save for your retirement!” But unfortunately, that’s not really true. The reality is, the longer you wait to save – or the deeper you are buried by debt – the harder it’s going to be to catch up once you get into the final stretch.

For example, let’s say you have nothing saved by the time you are 55. You would have to begin setting aside nearly half of your annual pay to even maintain a basic standard of living upon retirement.

For people who don’t prepare, what we are going to begin seeing much more regularly is scores of folks falling off the “retirement cliff.” That is, they will be forced to retire, either due to age or disability. However, their lack of savings will mean that aside from meager financial safety nets like Social Security or Social Security Disability Insurance, people will have nothing to keep them afloat. Their lifestyle will decline dramatically – hence, the whole “cliff” analogy.

You can’t assume that you’ll just work indefinitely. You may very well get to a point where it is simply no longer possible. Many people are going to find themselves aging and destitute.

This is why it’s smart to start thinking and talking about a bankruptcy today. Many people are scared off by preconceived notions about bankruptcy. They worry that their credit score will tank. They feel an overwhelming sense of guilt or failure about the whole thing.

However, the truth of the matter is that if you are already struggling with debt with a low salary and little to no savings, your credit score isn’t getting any better. In most cases, late payments and other factors have already decimated a client’s score by the time bankruptcy becomes a serious consideration. Better to take the credit score hit now and then have the ability to aggressively build up your savings, than to maintain the status quo of no savings through your remaining working years.

And secondly, this is not a moral failure. It’s not even a financial one. This recession hit a lot of people hard. Few were prepared for it. Many today are continuing to struggle. Bankruptcy is a strictly financial business decision,  that puts people back on solid footing.

By freeing yourself of your major debts, you are empowered with the ability to begin making meaningful contributions toward your savings and retirement accounts. This in turn provides you financial security in the long-term.

Sure, there are things you can do to help make retirement easier. You can look for a better job now, if at all possible. You can plan to work part-time when you do retire. You can take steps to significantly reduce your overall spending. But you may need to be open to the fact that these things may not be possible and even if they are, may not be enough.

Additional Resources:

Facing the ‘cliff’ of retirement, July 12, 2013, By Liz Weston, MSN Money

More Blog Entries:

New Streamlined Loan Modification Program, July 3, 2013, Mesa Bankruptcy Attorney Blog

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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