Navigating the Turbulent Waters: Dealing with Debt in Your Golden Years
Retirement is often envisioned as a time of relaxation and enjoyment, a reward for years of hard work. Yet, for numerous senior citizens, this is far from reality. The combination of inadequate pension and savings, high cost of living, health issues, financial aid to adult children, and relationship breakdowns often lead retirees to confront the daunting specter of debt. Thus, more and more older individuals are seeking guidance from Licensed Insolvency Trustees (LITs) to understand the options available to them under the Bankruptcy and Insolvency Act (BIA).
What is the Bankruptcy and Insolvency Act (BIA)?
The BIA is a federal law in Canada that offers two main solutions for debtors: the assignment in bankruptcy and the Consumer Proposal. Its primary objective is to assist honest but unfortunate debtors to alleviate their debts, providing them with a fresh start. For many seniors, the idea of filing for bankruptcy can be distressing, especially after years of successfully managing their finances. However, many are also at a point in their lives where they no longer need credit, such as for procuring a mortgage or credit cards. This makes them well-placed to utilize the BIA to climb out of debt.
Key Factors to Consider When Filing for Bankruptcy or a Consumer Proposal
When seniors contemplate filing a bankruptcy or a Consumer Proposal, two major factors come into play:
The debtor’s assets: If the debtor owns assets that could be realized in bankruptcy (like equity in real property), they might be able to sell that asset to pay off their debts, thereby avoiding a BIA filing. If they have no realizable assets and most don’t as they have already exhausted all of their cash resources by the time they consult a LIT, then a BIA filing might be their only option to address their debt.
Available cash after monthly expenses: A Consumer Proposal typically requires that there be an excess of cash once all monthly expenses are paid. If the individual’s income barely covers their monthly expenses, a common scenario for seniors on a fixed income, they may have no other choice but to file an assignment in bankruptcy to deal with their debt.
Increasing Cases of Income Tax Debt
LITs are noting a rise in the number of seniors with income tax debt owed to the Canada Revenue Agency (CRA). This often occurs when individuals choose not to have income taxes deducted from their pension payments, leading to owing taxes at the time of filing. After a year or two of non-payment, what began as a small tax debt can become an overwhelming financial burden.
Furthermore, some individuals may not generate enough income from their pensions or savings, and therefore decide to supplement this by working on a self-employed basis post-retirement. However, they often do not deduct taxes at source, leading to more tax debt.
Consequences of Income Tax Debt
Accumulation of income tax debt can lead to the CRA garnishing an individual’s pension payments, other income sources, and bank accounts. This action almost always worsens an already challenging financial situation. Filing an assignment in bankruptcy or a Consumer Proposal can enforce a stay of proceedings, which allows the garnishment to be lifted and ordinary payments to resume. Looking ahead, individuals can request that the government deduct taxes from their pension payments to avoid future tax liabilities.
Bankruptcy Assistance Program
For individuals who have no realizable assets and no excess income to afford the fee for filing bankruptcy, the Office of the Superintendent of Bankruptcy (OSB) provides the Bankruptcy Assistance Program (BAP). This program is accessible to any individual who cannot afford to pay the regular trustee’s fee. The BAP process functions as follows:
The OSB maintains a list of trustees who participate in the BAP by offering their services at a reduced rate. Contact the OSB office to request a BAP registration form and a list of LITs participating in the program in your area.
After receiving the BAP registration form, schedule an initial consultation meeting with two trustees from the list for an assessment and to obtain the trustee’s signature verifying your inability to pay the regular fees.
Submit the completed BAP registration form to the OSB. The OSB will review the information and, if justified, appoint a trustee to administer your bankruptcy estate.
Taking the First Step
Taking the first step to address a difficult financial situation is often the most challenging part of the process, especially for individuals facing financial hardship later in life. A trustee is best equipped to discuss their financial situation and review the available options, whether it is using a proceeding under the BIA or another option that could avoid a formal proceeding.
Addressing debt in one’s later years can be a daunting task, but the resources and options are available for those who are willing to take the first step. The key is to seek help early and explore all available options. With the right guidance and support, it is possible to navigate the turbulent waters of debt and find a path to financial stability even in your golden years.
