How Will Bankruptcy Affect My Retirement Income

The Impact of Bankruptcy on Pension: A Comprehensive Guide

Are you contemplating declaring bankruptcy but are worried about the implications it may have on your retirement income and investments? If so, you’re not alone. It’s a common concern that many retired individuals, or those nearing retirement, grapple with. In this comprehensive guide, we will delve into the intricacies of how bankruptcy and pension intersect and the potential implications for your financial future.

Declaring bankruptcy is often seen as the last resort for individuals who are unable to meet their financial obligations. However, bankruptcy, while it does have serious implications, can also provide a fresh start to those mired in debt. Understanding how bankruptcy affects different aspects of your finances, particularly your retirement income and investments, is crucial before making such a big decision.

Government-Sourced Retirement Income

One of the primary sources of income for retirees is the government, most commonly in the form of pensions like the Canada Pension Plan (CPP) and Old Age Security (OAS). The good news is, if you declare bankruptcy, your income from these sources is not affected.

Interestingly, if you have outstanding personal income tax due and the Canada Revenue Agency (CRA) is garnishing your CPP income, declaring bankruptcy can actually be beneficial. The CRA is the only entity allowed to garnish your CPP income, and by declaring bankruptcy, you can halt this garnishment, ensuring you receive your full CPP entitlement.

However, it’s important to note that income from CPP and OAS will be included in the calculations to determine if you have surplus income during your bankruptcy.

Exempt Assets in Retirement

Retirement assets such as Registered Retirement Savings Plans (RRSP), registered company pension plans (RPP), and a Locked-In Retirement Account (LIRA) are typically exempt from seizure in a bankruptcy. This means that you can continue to receive income from these investments even after declaring bankruptcy.

Despite their exempt status, the income stream from these assets will be factored into the calculation to determine if you have surplus income during bankruptcy.

Non-Exempt Assets in Retirement

Non-exempt retirement assets include Tax Free Savings Accounts, rental income properties, mutual funds, and marketable securities. In the event of bankruptcy, these assets, unless they are subject to a registered security agreement, could be seized by the trustee for the benefit of creditors. Consequently, you would lose the income stream from these assets.

Considering Bankruptcy

If you’re retired and grappling with a large debt load, bankruptcy might seem like the only viable option. However, it’s not a decision to be taken lightly. Declaring bankruptcy can have long-term implications on your financial health and should be considered only after exploring all other possible debt relief options.

Bankruptcy: The Process

Understanding the bankruptcy process is crucial before making the decision to file. The process involves working with a Licensed Insolvency Trustee who will help you fill out and file all the necessary paperwork and guide you through the entire process.

Life After Bankruptcy

While bankruptcy can provide a fresh start for those grappling with unmanageable debt, it’s not a magic wand that erases all financial woes. Life after bankruptcy requires careful financial planning, budgeting, and a commitment to avoiding unnecessary debt.

Exploring Alternatives to Bankruptcy

Bankruptcy might seem like the only solution when you’re facing a mountain of debt, but it’s not the only option. Alternatives like a Consumer Proposal, Orderly Payment of Debts, Debt Consolidation, and Credit Counselling can provide a viable path to debt relief without the severe implications of bankruptcy.

Seeking Professional Help

Navigating the complex world of bankruptcy and understanding its implications on retirement income and investments is not an easy task. Professional advice from a Licensed Insolvency Trustee can provide invaluable guidance, helping you to make informed decisions about your financial future.


The intersection of bankruptcy and pension can be complex, but with the right guidance and information, you can navigate these choppy waters. Remember, bankruptcy is not the end of your financial journey, but rather a stepping stone towards a debt-free future. It’s crucial to seek professional advice, consider all your options, and make informed decisions that align with your financial goals.

With the right planning and execution, it’s possible to file for bankruptcy and still maintain a comfortable retirement. So, if you find yourself asking, “How will bankruptcy affect my retirement income?” know that there are resources and experts available to help you navigate these complexities and secure your financial future.

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