Suzan Benge is 73 years old, and every month she lives on just $771 in disability payments, $100 in food stamps and $14 in state low-income subsidy. So when her credit card debt hit $18,000 earlier this year, she felt she had little choice but to join the rising tide of American seniors filing for bankruptcy.
The elderly are far more visible in US bankruptcy courts these days than in previous generations. Baby boomers aged 65 and older are racking up far higher levels of debt than their parents, who were raised during the Great Depression, and a growing minority are finding themselves tipping over from desperate financial trouble into bankruptcy.
Benge is one of them. In the sparse one-bedroom senior flat where she lives, in a suburb of decaying strip malls and six-lane potholed highways outside Detroit, she sits in the recliner that she bought with her credit card and reflects on how she came to declare herself broke.
The recliner is part of the story: the total monthly interest payments on the card that financed it cost more than the chair itself. Despite her advanced age, poor health and low income, she had been given a total credit line of $24,000 on her three credit cards. And since it was there, she spent it — though hardly for nights on the town.
Her total credit card debts of $18,000 were built up over nearly 20 years, she says, to finance several moves to escape poor living conditions, including a flat with bed bugs. Her borrowings quickly escalated due to the high interest and service fees charged by the credit card companies.
Once she filed for bankruptcy and knew she would be losing the cards, she went on a shopping spree, but all she bought was toilet paper and dishwashing liquid from the grocery store next door, necessities that she fears she won’t be able to afford without her cards. “I have enough dish soap to last me a year,” she declares mischievously, her bright hazel eyes lighting up her face.
The fate of seniors living on the edge was highlighted last year in data from the Consumer Bankruptcy Project, a long-term academic study that has been collating information on US bankruptcy filers since the early 1990s.
According to the 2018 report based on the data, entitled “Graying of US Bankruptcy”, one in seven people who file in the US are now aged 65 or older — an almost fivefold increase over just 25 years.
In 1991, over-65s made up only 2 per cent of bankruptcy filers, but by 2016 that had risen to more than 12 per cent, says Robert Lawless, one of the authors of the report and a professor at University of Illinois College of Law. (As about 800,000 households filed for bankruptcy that year, this works out as approximately 98,000 families or about 133,000 seniors, since many file jointly as couples, he adds.)
Over the same period, elders grew as a percentage of the US adult population too, but only from 17 per cent to 19.3 per cent. “The changes are so great that the broader trend of an ageing US population can explain only a small proportion of what is happening in the bankruptcy courts,” the authors write.
The trend is a side effect of several colliding social and economic forces in the US that are making the later years of people such as Benge remarkably stressful. Seniors are living longer and paying ever higher medical costs for the privilege of staying alive; many have little or no company pension and scant personal savings to fall back on.
Researchers who have studied the phenomenon say many seniors were raised by parents with a pronounced aversion to borrowing money, especially after retirement. But attitudes to debt have changed in recent decades.
Credit card debt was almost non-existent in US homes in the 1970s but has climbed steadily since then; credit cards are now easily available and usually accompanied by seemingly attractive interest rates and fees. Benge continued receiving offers for new credit cards even after she filed for bankruptcy and stopped paying off her existing ones.
In 1989, only one in five Americans aged 75 or older were in debt; by 2016, almost half were, according to the most recent US Federal Reserve survey of consumer finances. The rise in senior debt comes at a time when the wealth gap between rich and middle-class or poor Americans is at an all-time high, according to a study last year by the Pew Research Center.
By 2016, the wealth of upper-income Americans had more than recovered from the post-2008 recession, but the wealth of lower- and middle-income families was at 1989 levels, highlighting the long-term rise in income inequality in the US.
As these low- to middle-income families age, many are being pitched into debt-burdened retirement by several structural trends, including the decline of trade unions, with their power to negotiate real wage increases, good pensions and retiree healthcare packages; the disappearance of defined benefit pension schemes; steep healthcare inflation; and a sharp rise in middle-class families helping to pay for children to go to college.
“The baby boomer attitude to debt has not turned out to be as frugal as you would think it would be, having parents who lived through the Depression. Partly it’s because they have jobs that don’t keep up with inflation and they might have to have five or six jobs to make ends meet,” says Kevin Leicht, head of the sociology department at the University of Illinois. “And if the company they work for gets rid of defined benefit pensions, then that puts an incredible onus on them, and on top of that [there is] all sorts of easy access to credit.
“They have to be really skilled to come out the other side with a pension they can live on for 25 years. Companies have offloaded all the risk on to employees.”
After the Great Depression of the 1930s, the US gradually built a financial safety net for retirees, based on social security payments to supplement company pensions or private retirement savings and Medicare to pay for most healthcare costs. But by the end of the last century, this “golden age” of retirement security was largely over, say the authors of the “Graying of US Bankruptcy” report.
Seniors who start social security payments before the age of 70 are heavily penalised. Most companies have switched to 401(k) retirement plans that fluctuate with the stock market, leaving retirees bearing all the risks; and the rising cost of healthcare has left many seniors with large out-of-pocket bills that are not covered by Medicare — for many Americans, at least $100,000 per person over the span of their retirement.
This isn’t Benge’s first trip to bankruptcy court. The divorced mother of six filed for bankruptcy around 1980, after a car crash put her out of work for an extended period. Nearly 40 years later, she is heading to Detroit’s bankruptcy court to plead her case to have her debts wiped clean again.
“I didn’t get much sleep last night,” she says en route to the courthouse. “I’m a little ashamed. This isn’t something I’m proud of, it’s something I have to do.”
Dressed for court in a baby pink sweatshirt, and with her pageboy haircut combed just so, Benge takes the only spare seat in a windowless room filled with Detroiters waiting to appear before a bankruptcy trustee for their so-called 341 hearing, or “meeting of creditors”. The trustee is a lawyer, not a judge, and he or she might hear dozens of such cases in a day. Creditors usually do not show up for it.
Benge appears before bankruptcy trustee Karen Evangelista, who asks a few pro forma questions about her financial situation (paperwork has been filed in advance). Three or four minutes later, Benge emerges into the slushy spring streets debt-free.
It was touch and go for a while: Benge doesn’t have a car and she struggled even to find a ride to the courthouse that day, since she no longer has a credit card to pay for an Uber. But she emerges jubilant, and immediately starts drawing up a budget to save $200 a month out of her meagre but interest-payment-free income.
She doesn’t smoke or drink and doesn’t even attend outings organised by her senior home, since they cost money. She makes room in the budget for one vice, though: “I buy a scratch-off card now and then” — from the same next-door discount grocery where she gets her toilet paper, because she has no transport to go anywhere else.
Benge’s attorney, Charissa Potts, a Detroit area bankruptcy lawyer, handles cases such as this one pro bono, which means she is not paid a fee. The court also waived the $335 filing fee because of Benge’s low income. “I did the whole thing for the price of one Uber to the lawyer’s office,” Benge says.
Most seniors file for bankruptcy either under Chapter 7 or Chapter 13 of the US bankruptcy code, whose authority is derived from the US constitution. Those filing under Chapter 7 can look forward to total release from most debts but if they have any assets, the trustee will normally liquidate those to pay creditors. And in most cases, student loan debt cannot be discharged. In fact, student debt repayments can even be deducted from social security payments, which are protected from seizure by most other creditors.
Some seniors, especially those who have substantial equity in their own homes, may choose to file for bankruptcy under Chapter 13, which reschedules debts over three to five years, and usually spares the family home.
Ironically, Potts says she urges most senior clients not to file for bankruptcy at all — but they do anyway. “There really is not much a creditor can do to them other than harass them,” she says, noting that most are living only on social security, which is protected, “so they are pretty much judgment proof”.
Eight out of 10 file anyway, “because there is a sense of shame if a process server is coming to their house and putting a notice on the door. That really freaks them out,” she says. “Even if they don’t have to, they will often do it simply because they don’t want to deal with creditors any more.”
David Ward, a bankruptcy attorney who represents older debtors in northern Illinois, says that “many senior cases are filed as a matter of psychological relief, as much as anything else”.
Potts practises law in a blue-collar neighbourhood on the east side of Detroit, which was hit hard by the financial crisis and ensuing recession. What brings most people to her door? “Older people come in, they co-signed a loan with a grandchild. This has sharply increased since the last recession, because it was harder for young people to buy a car or even get student loans — so the grandparents will often co-sign and then the grandchild defaults and they file for bankruptcy,” she says.
Most are working-class people who “if they did save, could not accrue large nest eggs”, she says. “Quite often they are helping to support their children in their thirties, helping out with bills because the millennials and grandchildren are really not earning enough. They are helping their kids buy diapers for their grandchildren.”
Freddie Green, a 69-year-old General Motors retiree from nearby Pontiac, landed himself in the bankruptcy mill on the third floor of the federal courthouse in Detroit after he agreed to be a guarantor on a car loan for his son — and got in over his head with credit card debt.
“Suddenly the credit card companies were trying to garnish [automatically deduct] 25 per cent of my pension and a guy showed up trying to take my son’s car because of a loan I co-signed for him.”
Attorney Richardo Kilpatrick, who represents creditors in Detroit-area bankruptcies, says: “The number of seniors that we see has increased dramatically in the last 10 years or so and, within the last five, it’s almost exploded.”
The municipal bankruptcy of the city of Detroit in 2013 probably contributed to this trend, he says. Retired city employees saw their post-retirement benefits slashed as part of the deal to help Detroit emerge from bankruptcy, but this pushed more of these low-income Detroiters into insolvency themselves.
Yet Detroit is far from the only US city experiencing this trend. Charles Juntikka, a bankruptcy lawyer in New York for more than 30 years, says he has seen a large rise in seniors using his services. “They couldn’t afford to contribute to their 401(k) [employer-sponsored retirement account] before retirement because they needed that money to live on,” he says.
He points to a report by the Federal Reserve last year that highlighted the plight of middle-income America with a startling statistic: 40 per cent of Americans could not pay an unexpected $400 expense with cash or savings. Those living from pay cheque to pay cheque like this cannot save for retirement.
The same report found that a quarter of the pre-retirement adults surveyed had no pension or retirement savings, increasing the chances that they could end up candidates for bankruptcy court in old age.
Most of Juntikka’s elderly clients are living on social security alone, which places them just above the federal poverty line, he says. “They don’t want to file bankruptcy because of the guilt . . . The irony is that the minute the bankruptcy is over, they are inundated with credit card offers again.”
So do bankruptcy filings achieve anything, from a public policy perspective? The original goal of bankruptcy law was to help Americans get back on their feet after unexpected financial blows, to resume their role as productive members of society. The official website of the US Courts says the goal is to provide a “fresh start”. Those aged over 75 were hardly the original target constituency.
John Pottow, a bankruptcy professor at the University of Michigan law school, says: “This myth of a fresh start, that doesn’t work for someone who is 75. There is no getting back to work and building up your savings again; in five years, you’re just back in bankruptcy court.”
Juntikka sees one benefit, even if not the one originally intended. “I’d be surprised if it doesn’t increase their lifespan — all my clients are so stressed out and they are so fragile, but by the time they’re done with the process, they are smiling.”
Benge certainly has a spring in her step when she returns, debt free, to the senior complex where she lives. Hardly in the door, she runs into her 75-year-old neighbour Pat Vlad, who is pushing her walker through the lobby on her way to the grocery store.
Vlad recalls that when she found she could no longer make the payments on her credit card debt about eight years ago, while living in a camper van on her daughter’s property, “I just stopped paying ’em.”
“You didn’t need to declare bankruptcy,” she chides Benge, running her fingers through her curly grey hair and pausing between laboured breaths. “Even now I still get a letter from them every now and then trying to get me to spend more money on those credit cards — the ones I didn’t pay. The latest letter even had two new credit cards with it.”
Richard and Claudette Buria do not have any credit cards, and Richard, 72, retired with a substantial defined benefit company pension. But their financial plight is perhaps even more dire than Benge’s.
of those filing for bankruptcy in 2016 were over-65s compared with 2% in 1991
Like many middle- and lower-income Americans, their biggest problem is healthcare costs — and $72,000 in student debt, which accounts for nearly three-quarters of their total debt burden.
The Burias have an 18-year-old adopted daughter, and the son who incurred the college debt lives with them near Joliet, Illinois, a rust-belt Midwestern town where they appear in federal bankruptcy court. There they face a stern lecture from the judge about why they haven’t paid the $335 bankruptcy filing fee.
“We just haven’t had the money to pay,” Claudette Buria, clad in a knee-length crocheted cardigan, says in a meek voice. But the judge is not mollified even when Richard, his complexion grey with ill health, explains that he is on kidney dialysis and will soon be having a transplant.
“This is a life or death matter,” he tells the judge, asking for a two-week extension to pay the fees. The judge refuses, and the Burias’ bankruptcy filing is dismissed. So they have to start all over again and file another bankruptcy petition.
They have also been in bankruptcy court before — they filed for Chapter 7 five years ago, but were unable to discharge enough of their debts to recover. Claudette, 69, a former teacher, has had breast cancer, while Richard has diabetes and has had a triple-heart-bypass operation, along with a small stroke, in addition to his kidney disease.
Richard admits the couple have made mistakes: he retired from AT&T after 35 years, took a lump sum pension payment of $356,000, and then lost most of it with poor investments. “What I didn’t lose in the stock market, the medical bills ate it up,” he says, noting that his insurance has paid $10,000 for his kidney dialysis, but the total cost has been about $15,000 thus far, and he must pay for the treatment up front.
After he left AT&T and its healthcare coverage, Richard says he also made mistakes in negotiating a new health insurance plan and lost his home after problems meeting the adjustable-rate mortgage payments.
But what led the Burias to file a second bankruptcy petition was the gas bill. “What always forces us to go into bankruptcy are the utilities. We had our gas shut off for about three months. We had no hot water and no cooking gas, but bankruptcy gives you relief from utility bills — that’s why we filed the second time,” Richard says.
The couple rely on social security, but even that is not protected at the moment, since part of it is automatically deducted to repay their son’s student loans.
They are not the only seniors struggling with student debt, which has risen dramatically across the US due to steep, above-inflation rises in tuition costs. According to the US Consumer Finance Protection Bureau Office of Older Americans, the number of consumers aged 60 or older with this type of borrowing quadrupled between 2005 and 2015, mostly because they co-signed for children or grandchildren. And 37 per cent of federal student loan borrowers aged 65 or older are in default.
Meanwhile Richard is trying to find a way around the judge’s order dismissing his bankruptcy case — but he says he can’t afford a lawyer to help him. “We don’t know who to turn to,” he says.
Bernadette Wyre, 67, says her husband Jerry is counting the days until he can “re-retire”. He is 68 but, like many senior Americans, he can’t afford to retire the old-fashioned way: work hard for 30 or 40 years, and then stay home entertaining the grandchildren. In 1995, he was laid off from his job at the Detroit Board of Education. He tried working as a carpenter, but the couple couldn’t make ends meet: they have a son with cancer who lives with them and Bernadette is disabled.
So they filed for Chapter 13 bankruptcy in 2016 and Jerry began doing maintenance work at their church, so that they could meet the $1,400 monthly Chapter 13 payments.
“He brings home $300 every two weeks, and the rest they take for the Chapter 13 payments,” she explains, perched on the burgundy reclining sofa in the home in Detroit that the couple have lived in for the past 40 years — and saved thanks to Chapter 13.
“Absolutely every day he leaves for work, he says, ‘What month is this?’ Early next year, we’ll be done . . . the mortgage and car note will be paid off, and everything else we can maintain,” she says. She hopes her husband can then finally retire for good.
Kevin Leicht at the University of Illinois says many baby boomers face this problem of an endlessly delayed retirement. “Retirement is an elusive dream” for some, he says. “That’s why 60 is the new 30 — because the lack of economic stability means 60 can’t be 60 any more. To make a 401(k)-based system work, you have to contribute steadily to it for 40 years and that requires a lot of self-management” — not to mention spare cash to put into it.
“People at the higher end of the white-collar workforce say they don’t mind working for ever but most people are working at jobs where they can’t work for ever because they physically wear out,” he adds. “All this ‘You’re only as old as you feel’ stuff isn’t coming from people who work with their hands. Not everyone can work an unlimited amount of time until they go face down on the keyboard.”
Catherine Collinson, of the Transamerica Center for Retirement Studies, says we tend to think of today’s generation of retirees living in the “golden era of the defined benefit plan” with a guaranteed income. But this is a myth.
“Only 35 per cent had a company-funded pension plan and only 60 per cent have any kind of retirement account or personal savings,” she says, adding that a quarter of retirees in the US have an annual household income of less than $25,000.
By the standards of Suzan Benge, of course, that is a lot of money: her annual income totals just over $10,000. But thanks to bankruptcy, she’s got her recliner, her toilet paper and her year’s supply of dish soap. “Up to a few months ago, I was making three credit card payments and it was eating up my entire income,” she recalls. “Now I feel rich.”
Patti Waldmeir is the FT’s North America correspondent
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