Can You File for Bankruptcy if You Already Retired? 

 Posted on November 09, 2025 in Bankruptcy

Retirement should be a time of stability and peace of mind. For many people, however, it brings new financial problems instead. Medical costs, limited income, and unexpected emergencies can leave even the most responsible retirees buried in debt. Some own their homes and have retirement savings, but still struggle with credit cards, personal loans, or old tax debt they simply cannot keep up with.

If you are retired or getting close to retirement and considering filing for bankruptcy in 2025, you need a firm understanding of how the process could affect your income, your home, and your future finances. At Law Offices of Chance M. McGhee, our Boerne bankruptcy attorney has over 20 years of experience helping clients find practical, lawful paths to debt relief. We offer free consultations to help you decide whether bankruptcy is the right choice for you.

Why Retirees Consider Bankruptcy

Many people assume bankruptcy is only for younger people or families with parents who are still working. In reality, it is also very common among retirees who are on fixed incomes. After leaving the workforce, there are fewer opportunities to earn additional income, and inflation or unexpected expenses can quickly burn through your savings.

Common reasons retirees turn to bankruptcy include:

• Mounting medical bills or prescription costs

• High-interest credit card debt

• Personal loans or payday loans taken to supplement income

• Mortgage payments or property taxes that have become unmanageable

• Helping adult children financially

• Large repairs, such as a roof replacement or buying new car parts

Even with a paid-off home and retirement savings, debt can spiral out of control when income is limited. Bankruptcy can offer a structured path to relief, but it also requires careful planning.

How Bankruptcy Affects Retirement Income in Texas

One of the first concerns many retirees have is whether they will lose their retirement income or savings if they file for bankruptcy. Fortunately, Texas law provides strong protections for retirement assets in bankruptcy.

Under both federal and Texas exemptions, most tax-qualified retirement accounts are fully protected. This includes 401(k)s, IRAs, Roth IRAs, pensions, and other employer-sponsored plans. Social Security benefits are also protected under federal law, meaning creditors cannot seize them or force you to use them for debt repayment.

However, if you have already withdrawn funds from a retirement account and deposited them into a regular bank account, that money may lose its exempt status. Timing and account structure matter, so it is critical to speak with an attorney before moving or spending funds.

In short, filing for bankruptcy typically does not mean losing your retirement savings. Instead, it can help protect your remaining income by eliminating or reducing debt obligations.

How Bankruptcy Affects Home Ownership in Texas 

Texas is one of the most generous states in the country when it comes to homestead protection. Under the Texas Property Code, your primary residence is generally exempt from being sold to pay creditors. This means that, in most cases, filing for bankruptcy will not cause you to lose your home. However, the protection has limits. You must continue to make any required mortgage payments, and home equity can become a factor if you own multiple properties or significant acreage. The homestead exemption also may not apply against certain types of debts, such as home equity loans. 

If you are behind on your mortgage, Chapter 13 bankruptcy may allow you to restructure payments and catch up over time, helping you avoid foreclosure. If your mortgage is current but unsecured debt is overwhelming, Chapter 7 bankruptcy may provide faster relief by discharging most unsecured debts, such as credit cards or medical bills.

The Pros of Filing for Bankruptcy During Retirement

Filing for bankruptcy can offer significant advantages to retirees facing heavy debt:

Protection of Retirement Income and Assets

Bankruptcy exempts most retirement accounts and Social Security benefits, ensuring you can maintain your basic living expenses.

Elimination of Unsecured Debt

Credit card balances, medical bills, and personal loans can be discharged, freeing you from monthly payments and reducing financial stress.

Relief from Creditor Harassment

Once you file, an automatic stay goes into effect under federal law, stopping creditors from calling, suing, or garnishing your wages or accounts.

Potential to Keep Your Home

Texas homestead exemptions are some of the strongest in the nation, and bankruptcy can help you protect your home while dealing with unsecured debt.

Peace of Mind and Fresh Start

For retirees living on a fixed income, bankruptcy can provide much-needed financial breathing room and allow you to focus on your well-being instead of debt.

The Cons of Filing for Bankruptcy During Retirement 

While bankruptcy can bring relief, it is not without drawbacks. Understanding the potential downsides can help you make an informed decision.

Impact on Credit

Bankruptcy will remain on your credit report for up to 10 years. However, if you are already struggling with late payments or high balances, the practical effect may be limited.

Potential Loss of Non-Exempt Property

Although retirement accounts and homes are often protected, other assets, such as second properties, valuable collections, or large cash reserves, may be lost in Chapter 7.

Cost and Difficulty

Filing requires legal and court fees, as well as time spent gathering financial records. For retirees managing health issues or mobility challenges, this can be stressful without the help of a good attorney.

Embarrassment or Fear About Filing for Bankruptcy

Many older adults feel ashamed or discouraged about the idea of bankruptcy. If this sounds like you, it is important to remember that bankruptcy is a legal tool designed to help people recover from debt. Filing for bankruptcy does not make someone irresponsible or a failure. 

Alternatives to Bankruptcy for Retirees

Bankruptcy is not the only path to relief. Depending on your situation, you may be able to explore alternatives such as debt settlement or negotiation, where you work with creditors to reduce or settle your balance. Sometimes, credit counseling can allow you to enroll in a structured repayment plan through a nonprofit agency.

You may be able to refinance or reverse your mortgage, allowing you to access your home equity to pay down debt (though this carries long-term risks). Some people may also benefit from medical debt forgiveness programs, wherein hospitals or providers offer hardship relief for seniors with limited income.

Each option carries its own pros and cons, and an attorney can help you compare them before deciding which approach fits your financial and personal goals.

Call a Boerne, TX Bankruptcy Lawyer Today

If you are retired or planning for retirement and struggling with debt, bankruptcy may offer a path to financial stability. At Law Offices of Chance M. McGhee, we help people use bankruptcy as a tool to protect their homes, savings, and dignity. With over 20 years of experience and a commitment to practical, compassionate legal guidance, we will help you find the best path forward.

Call 210-342-3400 today to schedule a free consultation with a Kerrville bankruptcy lawyer who can help you decide whether bankruptcy during or after retirement is right for you.