Bankruptcy for Seniors: More Common Than You Think
Americans 65 and older are the fastest-growing demographic in bankruptcy. Medical debt, fixed incomes, and predatory lending have pushed millions of seniors into financial crisis. The good news: bankruptcy law provides strong protections for retirees.
Social Security and the Means Test
Social Security income is excluded from the means test under 11 U.S.C. section 101(10A)(B). This means that if Social Security is your primary or sole income source, you will almost certainly pass the means test and qualify for Chapter 7 -- regardless of the dollar amount.
This is one of the most important provisions in bankruptcy law for seniors. A retiree receiving $3,000/month in Social Security may qualify for Chapter 7 even if that amount exceeds their state's median income.
Retirement Account Protection
Retirement accounts receive some of the strongest protections in bankruptcy. 401(k), 403(b), 457, and other ERISA-qualified plans are protected without limit. Traditional and Roth IRAs are protected up to approximately $1.5 million (the cap is adjusted for inflation).
These protections apply in both Chapter 7 and Chapter 13. Your retirement savings are safe.
Medical Debt: The #1 Trigger
Medical debt is the leading cause of bankruptcy for seniors. Medicare doesn't cover everything, and supplemental insurance often falls short for major procedures, long-term care, or dental/vision care. Medical debt is fully dischargeable in both chapters.
Chapter 7 is usually the right answer for medical debt: it's fast, it's cheap, and the debt is eliminated in months. There's no reason to stretch medical debt discharge over a 5-year Chapter 13 plan.
Why Chapter 7 Is Usually Best for Seniors
For most seniors, Chapter 7 is the clear choice: Social Security makes the means test easy, retirement accounts are protected, homes are usually covered by homestead exemptions, and most senior debt (medical, credit cards) is easily discharged.
Chapter 13 only makes sense for seniors who need to cure mortgage arrears or have non-exempt assets they need to protect over time. Given the 3-5 year commitment and the risk of plan failure, Chapter 13 should be a last resort for retirees.
Bottom line: If you're a retiree living primarily on Social Security and retirement income, you almost certainly qualify for Chapter 7 and should strongly consider it over Chapter 13.
Frequently Asked Questions
Related Topics on This Site
Last updated: April 2026. Not legal advice.
Part of the Bankruptcy Transparency Network