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Bankruptcy After Retirement

Posted by in Bankruptcy
1
May 2019

More and more seniors in Canada are filing for bankruptcy. A senior retirement bankruptcy proposal is an option many people over 60 are turning to in order to reorganize their finances and work out a realistic budget for the longer term.

After all, life expectancy in the Western world is growing, and Canada is no exception. With people living well into their 90s, age 60 is now classed as late mid-life and so retirement bankruptcy proposal Toronto becomes a realistic option.

Bankruptcy After Retirement

Stats Reveal Increase In Retirement Bankruptcy

Between 2006 and 2010, around 9 percent of the debtors serviced by bankruptcy insolvency trustees in Toronto were 60 years of age or over. In the two and a half years between January 2008 and May 2010, 33,516 Canadians age 60 or over filed for bankruptcy, according to Industry Canada. In the last few years, this number has continued to soar, with more and more men and women aged 60 or older declaring bankruptcy.

Why Are More Retirees Filing for Bankruptcy?

There’s no one answer to this question. For some people there has been a significant setback, such as illness, divorce, job loss, or poor performance of assets. Others are hit by inflation, such as rising property taxes, medical bills, and unexpected expenses.

Some may not have planned as well as they thought they had while they were working. Many Canadians do not have a decent work pension plan and have relied on CPP and RRSP contributions to build-up their pension income. Given that interest rates have been relatively low for some time, this accumulation of pension income will likely not support a retired individual. Others have invested with risk and lost money on the stock market or in other ventures.

Other individuals lost a lot of their income or investments with the Great Recession in 2007-2008. Those with grown children decided to help out their offspring but suffered as a result of this. While they began retirement in comfort, things have declined financially over the years.

Ia a retirement bankruptcy proposal right for you?

Declaring bankruptcy in your retirement is a realistic decision, but it’s one that you will need to think through thoroughly. After all, it’s unlikely that you will work again, although not impossible, so your opportunities to earn are very limited. But if you are declaring bankruptcy simply because you can’t make ends meet on your pension income, that is something quite different and it is really time to see a financial planner to help you figure out how you can live on your fixed income.

It wasn’t that long ago that most seniors could retire without debt. Some owned their own house outright, and when retired they were able to live reasonably with their savings and pensions.

Today, an increasing number of seniors are retiring with debt. This means that when their income drops at retirement it often becomes extremely difficult, if not impossible, to both service debt and pay ongoing living expenses, which will be subject to inflation. There are some seniors who retired with their finances in order, thinking that they had enough funds for retirement. But as the Great Recession worsened they ended up helping their grown children deal with their money problems, and that often depletes their retirement nest egg, and can even lead to new debt.

Your Retirement Bankruptcy Proposal

The main issue with being in debt at retirement is that you need to pay off debt bills with a fixed or lower income. And your income-earning years are limited. You may be able to get by if you contribute minimum monthly payments on credit cards, but given today’s credit card interest rates you will likely be in this situation for years or, worse still, find yourself falling into more debt.

Although an option, retirement bankruptcy proposal isn’t necessarily the first choice or even the most sensible choice for seniors. This is because many people who have retired may not need to seek out bankruptcy. They are not earning or at the very least do not have full-time wages, and so creditors cannot take wages. In addition, creditors cannot — for the most part — garnishee someone’s pension. So for many retired individuals, a consumer credit proposal may be recommended, as opposed to retirement bankruptcy proposal Toronto.

Can the CRA garnish my CPP payments?

There is one important fact that retirees must be aware of. If debt issues are with the Canada Revenue Agency (CRA), a debtors Canada Pension Plan, Old Age Security and other pension income could very well be taken by the CRA. In effect, the Canadian government has given itself additional powers and can give with one hand and take with the other.

Under Section 224.1 of the Income Tax Act, the CRA can garnishee all types of pensions both government and private. Having said this, it is unusual for the CRA to garnishee more than 20 per cent of a pensioners pension income.

Sometimes, retirees owe the CRA taxes because they have not filed a tax return. It’s important to attend to your tax returns, even if you are retired. If you owe taxes to the Canadian government and are a recipient of CPP and OAS, the CRA can withhold some or all of your monthly pension payments to recover the tax debt. If you are in this kind of situation, ideally you should reach out to a credit agency or bankruptcy insolvency trustee and seek advice.

It’s important to keep in mind then that bankruptcy is primarily filed to stop creditors taking assets and income. For pensioners, the best option may be to submit a consumer proposal. Be sure to seek out professional advice and talking to a licenced bankruptcy trustee to determine which option is best for you.

For more information about bankruptcy after retirement, call Kevin Thatcher at 1-888-329-5198 or contact us here.

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