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Are You Retiring With Debt in Canada?

It’s not uncommon to retire with some form of debt, from mortgages to payday loans. In fact, one in three retirees holds some form of debt according to Statistics Canada. So you aren’t alone if you find yourself struggling financially once you’ve said goodbye to the office.

Unfortunately, it’s possible for anyone regardless of their age to face financial hardship, even during retirement. Once you’re retired, the income you once lived off usually decreases, but expenses like groceries, utilities and mortgage payments may not.

As a result, you may need to resort to using your credit card and other forms of borrowing such as loans, to maintain the lifestyle you had when working. If you get behind on your debt repayments, your creditors may start calling. Do you need to consider filing for Bankruptcy or are there alternative ways to settle your debt?

Are you thinking about what your retirement might look like in the future? This podcast talks about budgeting and saving for retirement.

What happens to my debt when I retire?

Retiring with debt is an unfortunate reality for many Canadians, and not something you need to feel ashamed of. If you retire with debt, it doesn’t disappear once you’ve retired and are receiving your pension. For this reason, some Canadians choose to delay retirement so they can pay off their debt beforehand.

Among retirees aged 75 and over, only 20% had some form of debt compared with 48% for those aged 55 to 64. Alternatively, you may choose to find another source of income during your retirement to help you repay your debt. 

Should I file for Bankruptcy when I’ve retired?

If your debt is feeling unmanageable during your retirement, you may consider filing for Bankruptcy to eliminate your debt and start afresh. But it’s important to remember that while Bankruptcy can help clear your debt, that isn’t the only reason that people file for Bankruptcy in Canada. Personal Bankruptcy is also a way to receive protection from creditors, by preventing them from garnishing wages or seizing assets. 

If you are retired, it’s likely that you will no longer have wages coming in and so do not have wages that can be garnished. Therefore, most seniors may not need to file for Bankruptcy in retirement as they no longer require the protection from creditors that comes with Bankruptcy. 

If you’re struggling with significant debt during your retirement and finding it impossible to see a way forward, your first port of call is consulting with a professional Licensed Insolvency Trustee (LIT). They will explain all your options to you, including Personal Bankruptcy and filing a Consumer Proposal, to decide on the best course of action to take the weight off your shoulders.

Will I lose my pension in Canada if I file for Bankruptcy? 

You’ve spent a lifetime building a pension so that you can enjoy your retirement. There are Canadian laws that protect certain types of pensions in the case of Bankruptcy.

The Bankruptcy and Insolvency Act exempts any Registered Retirement Savings Plans (RRSPs) or Registered Retirement Income Fund (RRIFs) from seizure in a Bankruptcy, except for any contributions you have made in the last 12 months. Only contributions made over the previous 12 months can be seized.

Here are the following pension plans that are exempt from seizure in Bankruptcy:

  • Registered Retirement Savings Plans (RRSP): RRSPs are an exempt asset in Personal Bankruptcy, except for any savings you have contributed in the 12 months before you declared Bankruptcy.
  • Registered Pension Plans (RPPs): Money accumulated in a RPP is exempt from creditors’ claims in Bankruptcy.
  • Locked-In Retirement Accounts (LIRA)/Lock-In Retirement Savings Plans: Any pensions in a locked-in registered plan are exempt from seizure in a Bankruptcy.

Canada Revenue Agency and Pensions

While your creditors may not be able to garnish your pension, the Canada Revenue Agency (CRA) has the right to do so – as they are not a typical creditor. They have more power than a credit card company, loans provider, or any other type of creditor. This means standard garnishment rules do not apply to CRA. For example, if you owe taxes to CRA and you receive Old Age Security (OAS), CRA can withhold some or all of your monthly pension payments.

There are options available to you. You could contact CRA and query the possibility of a repayment plan before they garnish your pension. Alternatively, you can consult with your LIT for information on how best to manage your debt – they will offer you professional and supportive advice to help you make the best decision for you and your finances.

Are you retired and struggling with debt? Contact a Licensed Insolvency Trustee today

After years of commitment to the workplace, your retirement should be your time to unwind and be free of financial worries. If you’re struggling with debt and in need of some support to get you back on track, why not reach out to a Licensed Insolvency Trustee for a free consultation? 

Here at Allan Marshall & Associates, our professional LITs have years of experience to help you settle your debts and enjoy your retirement. They will listen to your financial worries and with their help, you can say goodbye to your debt. Contact us today to improve your financial wellbeing. We can help™. 

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Scott Marshall BBA, C.I.R.P, L.I.T

Scott is serving as Vice President and managing partner of Allan Marshall & Associates Inc. since obtaining his License as a Trustee (LIT) in 2003. Scott graduated with a Bachelor of Business Administration (BBA) from the University of New Brunswick and is an active member of the New Brunswick business community. In past years, Scott has been a valued member of the Wallace McCain institute.