Considering Bankruptcy as a Senior With Pension Income & Credit Card Debt: A Guide for Canadians
Regrettably, individuals of any age can encounter financial difficulties, and Canadian seniors are not exempt from this reality. Upon retirement, it’s common for income to diminish while living costs like rent, utilities, and groceries remain constant. This can cause a financial imbalance. Consequently, seniors may turn to credit cards and other forms of borrowing to uphold their lifestyle, resulting in mounting debt. This debt can then result in a plethora of problems. This article will explore whether filing for bankruptcy is a necessary or recommended action for a Senior With Pension Income & Credit Card Debt in Canada.
Understanding Bankruptcy
Bankruptcy, in its essence, eradicates most of your debts. However, it’s crucial to note that most people do not file for bankruptcy merely to cancel their debts. For a majority of individuals, filing for personal bankruptcy is a means to secure protection from their creditors, often referred to as bankruptcy protection.
This protection prevents creditors from seizing wages or assets. However, for individuals in financial distress who don’t possess many assets, the primary reason for filing bankruptcy is to inhibit wage garnishment.
Retirement, Pensions, and Bankruptcy
One may wonder, “As a Senior With Pension Income & Credit Card Debt, do I need to file for bankruptcy?”. The answer, in most cases, is no. Most seniors do not need to file for bankruptcy post-retirement as they typically don’t require such protection.
Why? As a retiree, your income is generally not wage-based. Therefore, you don’t have wages that can be garnisheed. It’s highly challenging, if not impossible, for a creditor to garnishee a pension. Consequently, bankruptcy protection against wage garnishment isn’t usually necessary for seniors.
Practical Advice for Financially Troubled Retirees
If you’re a senior struggling with financial difficulties, we recommend the following steps:
- Seek advice from a non-profit credit counselor for unbiased guidance.
- If bankruptcy is still a consideration, consult a Licensed Insolvency Trustee local to you.
- Should you decide to evade bankruptcy, we suggest opening a new bank account with a different bank to prevent existing creditors from accessing your account. Ensure your pension and other income are deposited into this new account.
- Finally, if creditors are incessantly calling, inform them of your financial status and inability to pay. Over time, the calls should cease.
Debt Among Seniors
Like many Canadians, seniors are increasingly burdened with debt. A study conducted last year by TD Bank revealed that seniors over the age of 65 experienced the highest rate of debt growth among all age groups. Although the overall debt level per individual is lower for seniors, this rapid increase in debt growth raises concerns about seniors’ financial vulnerability.
Seniors and Bankruptcy: Key Considerations
Pension Income Versus Wages
As previously mentioned, bankruptcy is typically a means to seek protection from creditors. However, if you’re a retiree, your primary source of income is likely a pension. As pensions are challenging to garnishee, most seniors don’t need to file for bankruptcy to protect themselves from creditors.
Protecting Home Equity
If you have equity in your home and declare bankruptcy, this equity becomes part of your estate. In most cases, your trustee will need to realize this asset for your creditors. To keep your house when filing bankruptcy, you need to pay all of your home equity to the trustee. If you’re a senior on a pension income, this could be challenging unless you have family members willing to lend you money. A potentially better option may be to consider a consumer proposal.
RRSP and Pension Plan Exemptions
As a senior, you might have accrued some RRSP or RRIF savings that you depend on for future support. The rules regarding bankruptcy and RRSPs (and other pension plans) have changed in recent years. Now, when filing for bankruptcy, you retain your RRSP and other pension plans, except for any contributions made in the 12 months prior to your bankruptcy.
Impact on Credit Rating
While filing for bankruptcy or a consumer proposal does affect your credit score, the reality for most seniors is that you’re unlikely to borrow new debt in the future. Therefore, the primary objective for most seniors is debt elimination to ease their financial burdens.
Is Bankruptcy Right for You?
Deciding whether to file for bankruptcy is a significant decision. It’s especially challenging for seniors living on a fixed income and dealing with debts. The best debt relief option depends on numerous factors, including whether you have assets, who your creditors are, and how much you owe. For a comprehensive analysis of whether a bankruptcy or consumer proposal is the optimal option for you, contact a trustee in bankruptcy today.
Remember, as a Senior With Pension Income & Credit Card Debt, there are various courses of action you can take to alleviate your financial stress. Bankruptcy is just one option, and it’s important to thoroughly consider all alternatives before making a decision.
