Bankruptcy for Senior Citizens

Older New Yorkers carry more consumer debt than any prior generation of retirees. A hospital stay that Medicare did not fully cover, a credit card used to keep up with rent increases, a loan co-signed for a grandchild, or a boiler replacement in a Queens two-family house can leave a person on a fixed income owing far more than they can pay. Collection calls follow. Then a summons. Then a judgment.

Federal bankruptcy law and New York's exemption statutes give seniors strong protection. Social Security, most pensions, and retirement accounts are shielded from creditors. A home in the five boroughs carries a large homestead exemption. For many retirees, a Chapter 7 case wipes out unsecured debt in a few months while leaving every source of income untouched. This page explains how the process works for a person over 60 living in New York City, what the law protects, and where the traps are.

First Question: Do You Need to File at All?

Some seniors are what collection lawyers call judgment-proof. If your only income is Social Security and you rent, a creditor who wins a judgment against you may have nothing to collect. Federal law, 42 U.S.C. § 407, bars creditors from garnishing Social Security benefits. New York's Exempt Income Protection Act, CPLR 5222-a and CPLR 5205(l), requires a bank to leave a protected amount in any account that received a direct deposit of Social Security or a pension in the prior 45 days, and the bank cannot freeze exempt funds.

New York also shortened the statute of limitations on consumer credit debt. Under CPLR 214-i, a creditor has three years from the date of default to sue on a credit card, medical bill, or personal loan. A debt from 2019 that has never been reduced to a judgment is likely time-barred. Under the Consumer Credit Fairness Act, a collector who sues on a time-barred debt violates state law.

Being judgment-proof is not the same as being free of the debt. Judgments in New York last 20 years under CPLR 211(b). A judgment lien attaches to any real property you own in the county where it is docketed. The debt shows on your credit report. Collection calls continue. An inheritance or the sale of a house can suddenly make you collectible. Bankruptcy ends all of that permanently. For a senior who owns a home, has savings above the exempt amount, or simply wants the calls to stop, filing is often the better path.

What Bankruptcy Cannot Touch: Your Income

The central fear we hear from older clients is that a bankruptcy trustee will take their Social Security check or their pension. That does not happen. The protection comes from several overlapping sources.

• Social Security and SSI: Exempt under 42 U.S.C. § 407 and CPLR 5205(l). Benefits are also excluded from the bankruptcy means test under 11 U.S.C. § 101(10A)(B)(ii), so a retiree's Social Security income does not count toward whether they qualify for Chapter 7.
• Pensions and 401(k) plans: Employer plans qualified under ERISA are excluded from the bankruptcy estate entirely under 11 U.S.C. § 541(c)(2). New York State and City pension benefits, including NYCERS, TRS, and police and fire pensions, are exempt under their own statutes and under CPLR 5205(c).
• IRAs and Roth IRAs: Exempt under CPLR 5205(c)(2) without a dollar cap, except for contributions made within 90 days before filing, which the trustee may reach under CPLR 5205(c)(5).
• Veterans benefits: Protected under 38 U.S.C. § 5301 and excluded from the means test by the HAVEN Act amendments to 11 U.S.C. § 101(10A).
• Life insurance and annuities: New York Insurance Law § 3212 protects the cash value of life insurance and most annuity payments from creditors of the insured.

The one practical caution is commingling. If Social Security is deposited into an account that also holds a tax refund, proceeds from selling a car, or a gift from a relative, a trustee may argue that the non-exempt money is reachable. Before filing, we look at every account and, where needed, separate exempt income from other funds so the protection is clean.

Chapter 7 for Retirees

Chapter 7, governed by 11 U.S.C. §§ 701 through 727, is a liquidation case. A trustee appointed by the United States Trustee reviews your property, sells anything that is not exempt, and pays the proceeds to creditors. In the large majority of consumer cases filed in New York City, there is nothing to sell. The case is a "no-asset" case, and the debtor receives a discharge under § 727 roughly 90 to 120 days after filing.

The means test and Social Security

To qualify for Chapter 7, a debtor whose debts are primarily consumer debts must pass the means test under 11 U.S.C. § 707(b). The test compares your household's current monthly income to the New York median for a household of your size. Because Social Security is excluded from current monthly income by statute, most retirees pass the first step automatically. A married couple in Brooklyn receiving $4,200 a month in combined Social Security and $900 from a small pension reports only the $900 for means-test purposes. We walk through the calculation in detail on our NYC bankruptcy means test page.

Passing the means test does not end the inquiry. The court can still dismiss a case for abuse under § 707(b)(3) if your actual budget shows you could pay a meaningful amount to creditors. A retiree with $6,000 a month in Social Security and pension income, low rent, and $15,000 in credit card debt may face a United States Trustee motion even though the means test was passed. We address that risk before filing, not after.

Filing fee waivers

The Chapter 7 filing fee is $338. Under 28 U.S.C. § 1930(f), a debtor whose household income is below 150 percent of the federal poverty guideline and who cannot pay in installments may apply for a full waiver. Many seniors living on Social Security alone qualify. The court also permits payment in up to four installments over 120 days under Fed. R. Bankr. P. 1006(b).

Protecting Your Home

Home equity is the largest asset most senior New Yorkers own and the one most at risk in a poorly planned case. New York gives debtors a choice under Debtor and Creditor Law § 285: use the New York exemptions or the federal exemptions in 11 U.S.C. § 522(d). A homeowner in the city almost always uses the New York set because of the homestead exemption.

The New York homestead exemption

CPLR 5206(a) exempts equity in a home you own and occupy as your principal residence. The amount depends on the county. For Kings, Queens, New York, Bronx, and Richmond counties, the exemption is $204,825 per debtor as of the April 1, 2024 adjustment. The figure is recalculated every three years by the Department of Financial Services. The exemption applies to a house, a condominium unit, a mobile home, and, by express language in the statute, shares in a cooperative apartment corporation.

Equity means fair market value minus all mortgages and liens. A Bronx homeowner whose house is worth $620,000 with a $450,000 mortgage balance has $170,000 in equity, which is fully protected. When a married couple files jointly and both own the home, bankruptcy courts in New York have permitted each spouse to claim the exemption, protecting roughly $409,650 in combined equity.

Homeowners with equity above the exemption cannot safely file Chapter 7. The trustee would sell the house, pay the mortgage and the exempt amount to the debtor, and distribute the rest. Chapter 13 solves that problem, as explained below.

Co-op and condo owners

Co-op ownership raises particular issues because the shares and proprietary lease are personal property, and the co-op corporation holds a lien for unpaid maintenance that sits ahead of any lender. Boards also have the power to terminate the lease for arrears. Our page on co-op apartments in bankruptcy covers how the homestead exemption applies to shares and how a Chapter 13 plan can cure maintenance arrears while the automatic stay holds off the board.

Reverse mortgages

Many seniors have a Home Equity Conversion Mortgage. Because no monthly payment is due, a reverse mortgage rarely drives a bankruptcy. It does affect the equity calculation, since the accrued balance grows each month and reduces the equity you must protect. Most reverse mortgage documents list bankruptcy as a default event, but the lender cannot call the loan due while you continue to live in the home and stay current on property taxes and homeowner's insurance. We review the loan terms before filing and, where taxes or insurance are behind, address them in the case.

Removing judgment liens

A creditor who obtained a judgment against you and docketed it in the county clerk's office holds a lien on your home. Under 11 U.S.C. § 522(f), a debtor can move to avoid that lien to the extent it impairs the homestead exemption. A Staten Island retiree with $150,000 in equity and a $22,000 judgment lien from a credit card company can strip the lien entirely, because the equity is fully exempt and the lien impairs it. The motion is filed during the case, and the order is recorded with the clerk after discharge.

The full list of what New York protects, including vehicles, household goods, and the cash exemption for renters, is on our bankruptcy exemptions page.

Chapter 13 When You Own Too Much or Are Behind

Chapter 13, 11 U.S.C. §§ 1301 through 1330, is a repayment case. You keep your property and pay creditors over three to five years through a trustee. The plan length is set by § 1322(d): three years if your income is below the state median, up to five years otherwise. Because Social Security is excluded from current monthly income, most retirees qualify for the three-year minimum, though they may choose a five-year plan to lower the monthly payment.

Chapter 13 fits a senior in three common situations.

1. Home equity above the exemption: A Queens widow with $320,000 in equity and $60,000 in credit card debt cannot file Chapter 7 without losing the house. In Chapter 13, she must pay unsecured creditors at least what they would have received in a Chapter 7 liquidation under § 1325(a)(4), but she can pay it over 60 months while keeping the home.
2. Mortgage or property tax arrears: Under § 1322(b)(5), a plan can cure a mortgage default over the life of the plan while regular payments resume. The automatic stay under § 362(a) stops a foreclosure the moment the petition is filed.
3. Recent tax debt or other non-dischargeable claims: Income taxes less than three years old survive a Chapter 7 discharge under § 523(a)(1). Chapter 13 lets you pay them over time without penalties continuing to accrue. See our page on IRS tax debt in bankruptcy.

Chapter 13 has eligibility limits. As of April 1, 2025, a debtor's noncontingent, liquidated unsecured debts must be below $526,700 and secured debts below $1,580,125 under § 109(e). The first plan payment is due within 30 days of filing under § 1326(a)(1), regardless of when the court confirms the plan.

Traps Specific to Older Debtors

Gifts to children and grandchildren

A parent who transfers the deed to a child, or adds a child to a bank account, or gives away $20,000 to help with a down payment shortly before filing creates a serious problem. Under 11 U.S.C. § 548, the trustee can recover transfers made within two years before filing for less than reasonably equivalent value. Under New York's Uniform Voidable Transactions Act, Debtor and Creditor Law § 273, the reach-back period is four years, and the trustee can use it through § 544(b). The child, not the debtor, becomes the defendant. Question 13 of the Statement of Financial Affairs asks about gifts over $600 in the prior two years, and the answer is given under penalty of perjury. Tell us about every transfer before we file.

Medicaid planning and bankruptcy do not mix well

Seniors often work with an elder law attorney to position assets for Medicaid eligibility. Those same transfers, viewed through a bankruptcy trustee's eyes, are voidable. Sequence matters. In most cases the bankruptcy should be completed first, with the discharge entered, before any Medicaid-driven transfers occur.

A deceased spouse's debts

You are not personally liable for a late spouse's credit card balance unless you were a joint account holder or co-signer. Being an authorized user does not create liability. Creditors may pursue the estate, but if the estate has no probate assets they have no claim against you. Filing bankruptcy to eliminate a debt you never owed is unnecessary.

Co-signed student loans and auto loans

Loans co-signed for a grandchild are your debts in full. Private student loans are generally non-dischargeable under § 523(a)(8) absent a showing of undue hardship. A co-signed auto loan is dischargeable as to you, though the lender may repossess the vehicle from the grandchild if payments stop. These loans require a specific plan.

Procedure and Deadlines

The process is the same for a 70-year-old as for anyone else, but the timeline matters more when income is fixed and health is a factor. The key steps are below.

The credit counseling requirement trips up more seniors than any other step. The course takes about an hour and can be completed by telephone. A debtor who cannot complete it because of incapacity or disability may seek a waiver under § 109(h)(4), but the standard is strict and requires evidence. We arrange the course and handle the certificate.

Residents of Manhattan and the Bronx file in the Southern District of New York at One Bowling Green. Residents of Brooklyn, Queens, and Staten Island file in the Eastern District at 271-C Cadman Plaza East. Our debtor's guide to One Bowling Green explains what to expect at the courthouse if an in-person appearance becomes necessary.

Two Worked Examples

Example one: renter in Washington Heights

A 74-year-old retired home health aide receives $1,850 a month in Social Security and rents a one-bedroom apartment. She owes $31,000 on four credit cards and $8,400 to a hospital. One card issuer has a $9,200 judgment against her. She has $3,100 in a checking account and $14,000 in a traditional IRA. Her Social Security is excluded from the means test, so she passes. Her IRA is exempt under CPLR 5205(c). Because she claims no homestead, she uses the New York cash exemption under Debtor and Creditor Law § 283(2) to protect the checking account. She qualifies for a filing fee waiver. Her Chapter 7 case is filed, the 341 meeting takes place by telephone 30 days later, and she receives a discharge of all $39,400 about 100 days after filing. The judgment is void as a personal obligation under § 524(a)(1).

Example two: homeowner in Flatbush

A 68-year-old retired MTA bus operator and his wife own a two-family house worth $890,000 with a $410,000 mortgage, leaving $480,000 in equity. He receives $3,900 a month from his pension and Social Security; she receives $1,600 in Social Security; the upstairs tenant pays $2,300. They are $27,000 behind on the mortgage after his wife's cancer treatment and owe $52,000 in medical and credit card debt. Even with both spouses claiming the homestead exemption, roughly $70,000 in equity is unprotected. Chapter 7 is off the table. They file Chapter 13. The plan cures the $27,000 arrears over 60 months, resumes regular mortgage payments, and pays unsecured creditors the $70,000 liquidation value under § 1325(a)(4). Their pension and Social Security are not counted as current monthly income, but the rental income is, and the budget shows the payment is feasible. The foreclosure stops the day the petition is filed, and they keep the house.

Should You Involve Your Adult Children?

Many older clients bring a son or daughter to the first meeting, and we welcome that. A child who helps manage finances can gather statements and answer questions about transfers. Two cautions apply. First, the attorney represents you, not your children, and the advice given is for your benefit. Second, a child who holds power of attorney can sign a petition only if the court permits it, and the bankruptcy courts in New York examine those cases closely. Where a debtor has dementia or another condition affecting capacity, Fed. R. Bankr. P. 1004.1 permits a guardian or next friend to file, and we address that at the outset.

You can contact the Law Offices of Albert Goodwin by phone at 212-233-1233 or by email at [email protected].