Senior citizens are one of the fastest growing segments of the population to file for bankruptcy. Bankruptcy in retirement is becoming increasingly necessary for several reasons. The most common reason is due to medical expenses. The sandwich generation has also run up credit card debt while finding that they cannot make the money they expected to pay for it, while giving money to grown children or supporting an aged parent. One major cause is the inability to downsize one’s home at retirement. The plan was to sell the family home to pay off the mortgage, any other home equity lines of credit and use the proceeds to add to the retirement nest egg.

Since the housing bubble popped, many retirees are left making payments on a property they cannot sell, barely holding on or going into debt each month with other bills while struggling to make the mortgage. Another reason more people over 55 are filing for bankruptcy is age bias in the workplace, forcing those who want to work to retire instead. Without proper legal advice, some people will draw down their retirement accounts, incurring massive tax penalties, to pay off debts that could be discharged in bankruptcy. They then lose that future source of retirement income that would otherwise have been protected under bankruptcy law.

Unless you have put money in your IRA or 401K in the 12 to 36 months prior to filing for bankruptcy, creditors cannot touch your retirement savings accounts. If you have a private investment account that you plan on using for retirement funds but it is not a tax advantaged retirement account like a 403B or 401K, it can be seized and liquidated to make good on your debts.

Your Social Security Disability and SSI payments cannot be garnished by collectors. However, if they have electronic access to your checking account, they can take money – including retirement funds. If creditors are garnishing your bank account, set up a separate account for direct deposit of your Social Security payments to protect it from garnishment. Pension plan payments such as those from union pensions cannot be garnished by debt collectors.

If you are in retirement and are being pursued by debt collectors, it is wise to seek legal counsel. You may not owe the money due to the statute of limitations. Or you may be harassed by debt collectors who assume that if they harass the elderly, the innocent will pay a debt just to make good on a promise they thought they made. Debt collectors will also lie to parents who have helped their children financially, seeking payment from someone who does not actually owe the money.

If you have massive debts and are considering bankruptcy, you should speak with an attorney. Bankruptcy can protect future earnings and income sources such as inheritances that are a decade away or a second career you hope to pursue. You may need to file for bankruptcy now so that you can actually retire when your health declines. However, you need to talk to an attorney so that you do not file for bankruptcy at the wrong time and lose the protections that it affords, such as when you are going through a medical crisis or coping after the loss of a loved one.

Rick Abelmann owns Abelmann Law, a Hawaii bankruptcy law firm, to help families with their financial debts, so they can start fresh on a new financial path.