An estimated 37,000 seniors and baby boomers will file bankruptcy or a consumer proposal in Canada this year. The numbers for Ontario are just as staggering with over 12,000 older Ontarians needing to declare insolvency in order to deal with the burden of overwhelming debt they cannot pay on a fixed, and often reduced, income.
With 1 in 3 retired Canadians carrying debt, and 2 out of 3 pre-retirement seniors in debt, the numbers are likely to grow. Older Canadians may be embarrassed to admit that they have debt problems or seek professional advice however it is important to review all your options before jeopardizing your retirement assets.
Our slideshare Debt Management Solutions for Boomers and Seniors outlines the issues facing seniors in debt and provides information about the range of debt management options available. Topics include:
- helping parents with debt
- what happens to debt after death
- protecting your home with a consumer proposal
- issues for seniors considering bankruptcy
If you are struggling with debt on a fixed or reduced income, contact us for help. Don't jeopardize your retirement nest egg before talking to one of our experts about your options.
Debt Management Issues for Seniors
Seniors facing financial problems have unique issues compared to younger Canadians:
- most are on a fixed or reduced income;
- they need to protect assets like their home and RRSP's since they will have little ability to replace these investments before or during retirement.
Protecting Your Home
It may be possible to utilize the equity in your home to pay off existing debts. Solutions can include:
- refinancing with a traditional second mortgage or reverse mortgage;
- using the equity value in your home to make a proposal to your creditors.
Refinancing through a mortgage will work if your debts are less than the equity value of your home and you can afford the monthly payments.
Neither option is suitable if you have significant debts. Mortgaging the equity in your home is a big risk if you do not eliminate all of your unsecured debts and you cannot keep up with all of your debt payments.
A consumer proposal is a way to consolidate and deal with all unsecured debts and keep your home.
Protecting your RRSP
RRSP's and RRIF's are excluded from seizure in a bankruptcy or consumer proposal with the exception of contributions made within the last year. Since most seniors are no longer making RRSP contributions this limitation may not apply.
Since your retirement funds are already protected by bankruptcy law, it is important that you talk to a bankruptcy trustee before draining your retirement savings to pay off debts. Again, if by doing so you are not dealing with all of your debt problems and you are jeopardizing your retirement, you trustee can talk to you about whether or not bankruptcy or a consumer proposal are a better choice.
Pension income is not considered wages and as such cannot be garnished by your creditors. If your only source of income is your pension, and you do not have other assets like a home or investment, bankruptcy may not be necessary as you may be considered to be 'creditor proof'.
However, bankruptcy or a consumer proposal does stop collection calls and eliminate your debt. Some seniors prefer to file bankruptcy in order to eliminate the stress of handling these calls. Since their income is limited, they are not subject to surplus income and their bankruptcy is usually completed within 9 months.