Generosity has limits, as many older Americans in financial straits are finding out.
No matter their age, parents continue to feel a responsibility for their children. That’s understandable, especially since the Great Recession has taken a toll and prompted millions in layoffs that have devastated families and forced many from their homes and apartments and into bankruptcy.
But, unfortunately, that economic downturn is taking an unexpected toll as well on many older Americans through no fault of their own except for their continuing generosity. When people in this demographic should be stashing extra money for their retirement or already enjoying their retirement in a home that’s already paid for, a growing number are filing for bankruptcy and losing their homes to foreclosure because they think they’re being good parents or grandparents.
That’s the experience of Los Angeles attorney Leon Bayer, a bankruptcy attorney and author whose practiced law for 34 years. In 2013, he co-authored two books: The New Bankruptcy and The Human Guide To Bankruptcy as well as authoring Foreclosure Survival Guide (www.bankruptcyblogger.org).
Bayer says 75 percent of the bankruptcy cases he handles for older Americans aren’t of their own doing for mismanaging their finances or unexpected expenses. Instead, he says it’s a result of parents helping their own adult children, some who are approaching 50. In some cases, the parents abandon their children with grandparents, he says.
“A lot of times they’re victimized by their adult children who convince them to borrow money against the home and give it to them to start a business, only to lose the money. They get talked into co-signing loans for cars that get repossessed. They get sued and are dismayed that they have to pay for it, not knowing what a co-signer means.”
The problem, Bayer says, is the parent uses their credit for children or family member they’ve known their whole life and many of them haven’t been successful or even hold down a job. They help the person out of guilt, and know they’re being victimized before they act, he says.
“It’s a hard reality when it comes to losing a house because an adult son or daughter who lives there pays no rent and you’re covering the grocery bills, utility bills and mortgage. They’re not contributing but sponging off you. Why do you do it? It’s mostly psychological. Parents feel they maybe failed their child because they didn’t give their son or daughter the right values or they didn’t mold that person into a working and contributing adult. There are a lot of factors, but guilt plays into it.”
Research recently released by UCLA and the Insight Center for Community Economic Development backs up what Bayer has seen in his offices. They reported that hundreds of thousands of adults have returned to the homes of their parents, many who are retired and living on fixed incomes.
The study says 433,000 people aged 65 and older took in nearly 600,000 adult children, only of which 42 percent were employed. That’s putting pressure on the parents to not only house them but to feed them and provide medical care and transportation. That’s costing the parents to spend two-and-a-half times more a year than they would otherwise, the study says.
As for the 25 percent of cases he handles that haven’t involved children moving into homes, Bayer says it’s because many haven’t saved enough for retirement and Social Security isn’t enough to take care of their everyday living expenses.
These older folks rely on credit cards to make up for the shortage in income and that gets them in trouble, Bayer says. Rarely, are those filing for bankruptcy due so for medical bills among those older in his experience, he says.
“Bankruptcy is not age sensitive,” Bayer says. “The oldest client I’ve had recently is 98 years old. He’s a wonderful man who’s mentally fit and plays golf once a week. He had $35,000 to $40,000 in credit card debt.”
But Bayer says there are advantages to filing for bankruptcy for older Americans, especially when it comes to filing for Chapter 7 protection to wipe out credit card debt without having to make a payment, he says.
“The new laws on eligibility compare income to debt and living expenses, and it doesn’t count Social Security in that formula,” Bayer says. “That makes it easier to file for bankruptcy than younger counterparts.”
The laws for who gets to keep more of their assets is more generous for older people. In California where he practices, those 65 and older can keep up to $175,000 in equity in their homes compared to $100,000 for others no matter how much debt they owe, Bayer says. For those 55 and older and have less than $20,000 a year in income, they qualify for the $175,000 in equity, he says.
Other states allow people to keep less in equity while California and Texas allowed an unlimited amount.
Many of these people are frustrated with what they’re facing, but a home can’t be used as a piggy bank no matter the reason, Bayer says. They say they can’t bear to leave their homes of more than 30 years but a house payment of $3,000 a month is quite different than the $280 a month payment they made 38 years ago.
No matter how they got into financial trouble, Bayer says many older Americans feel isolated and ashamed and hold off on seeking advice. They may not have to file for bankruptcy, and if they do it alleviates pressure from creditors that they’re dealing with, he says.
“They may be getting their pockets picked by adult children, but it doesn’t mean they fall into the pit of needing to file for bankruptcy,” Bayer says. “It’s for those who run out of credit because their children sucked the equity out of the parents home.”