Debt Relief Options Available to Seniors

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When you become a senior, your relationship with money changes in a drastic way. It’s no longer something you can expect to keep coming in every two weeks through employment income. If you are still working, it’s likely that one of your financial goals is to eventually stop depending on that salary.

Today, a third of Canadian seniors are carrying consumer debt into retirement, meaning they owe credit card companies, payday lenders, lines of credit, and other types of debt. On average, they owed over $11,000 in non-mortgage debt in 2018.

Senior debt is problematic for those who are moving into their non-working years. They’ll be relying on their pension or, increasingly, investment income like an RRSP or TFSA to cover their living expenses.

All this comes at a time when seniors are asking themselves if they’ll have enough money down the road.

If you’re dealing with senior debt, it’s time to review your debt relief options. You can check out our debt relief tips for a general understanding, but below, you’ll find answers designed to help those who are retired or nearing retirement.

How Seniors Wind Up in Debt

People carry consumer debt into their 50s, 60s, and beyond for a variety of reasons. As you get older, it becomes harder to shift careers, and you’re more vulnerable to broader economic shifts that can lead to industry downsizing. Sometimes during a downturn, older workers are pressured into early retirement so companies can save on the higher salaries they pay to their most senior employees. In many cases, older workers face long periods of unemployment as they ride out industry changes. Health issues can also cause a loss of income over periods of time.

Even if and when you get back to work after a long period of unemployment, you may have drawn on a line of credit or credit cards to bridge the gap.

Borrowing Money Post-Retirement

Getting into debt post-retirement can be a dangerous proposition. Why does it happen? Seniors who rely on a fixed income are particularly vulnerable to rising costs. Higher utility bills, such as Ontario’s rising hydro rates, or major changes in the cost of living such as property taxes, condo fees, or groceries and gas can throw out the best-planned retirement budgets and leave you in a pinch.

Unfortunately, many seniors are turning to payday loans as a way to cover immediate expenses. However, if your retirement income isn’t enough to cover your expenses this week, it won’t be enough to cover expenses and repay loans with predatory interest rates next week.

What Can Happen If You Have Senior Debt?

What are the consequences of owing too much money when you’re in retirement? Can your creditors garnish your pension or seize your retirement savings?

If you’re worried about losing your pension to creditors, you should know that most sources of retirement income are protected in Canada. Government funds include the Canada Pension Plan (CPP), Old Age Security (OAS), and Guaranteed Income Supplement (GIS). Only the Canada Revenue Agency is allowed to garnish your Canada Pension Plan (CPP) payments if you owe back taxes. They must stop if you declare bankruptcy.

When it comes to other private pensions, other creditors cannot seize the pension itself, but they can garnish the income paid out of it. Again, bankruptcy can protect that income, and if you’re facing a garnishment on pension income, it’s time to talk to Licensed Insolvency Trustees about senior debt relief.

Wage garnishments on pension income are possible, though your pension itself is largely protected. However, even if your pension is safe, going into debt when you’re in retirement can cause cash flow issues. High-interest debts eat into your purchasing power, which may already be limited by a fixed income.

If you have the option, it’s always better to pay off debt before you retire, unless that means draining your savings. Continuing to work and pay off debt with employment income is the safest way forward if you are able.

What Are Your Options for Senior Debt Relief?

There are several debt relief options that you can pursue. Whether or not they work for you depends on your financial situation. Are you still working, or have you retired? How much and what kind of savings do you have? What kind of debt do you owe?

Consider your debt consolidation options, such as a debt consolidation loan or management plan. A debt consolidation loan is typically taken out with a bank or credit union at a lower interest rate than their credit cards or payday loans. You can use this money to settle your high-interest loans, allowing you to save money in the long run.

Senior debt financing such as a debt consolidation loan makes sense if your pension payments can keep up with your new monthly payment. Lowering the interest rates on what you owe can make a big difference.

There are also government debt relief options that you can use. These include filing for bankruptcy or a debt consumer proposal, two different ways of settling your debt.

A consumer proposal is a government debt relief option that also functions similarly to debt consolidation. A big advantage is that you get relief from interest rates and only make one monthly payment. It is also legally binding and protects you from creditors. Your monthly payment is based on how much you owe as well as what you can afford. Unlike a loan, a consumer proposal can also result in a sizable reduction to the amount of the principal.

Consumer proposals are a good way to pay off senior unsecured debt if you have higher than average pension or investment income, and you don’t depend on every dollar to cover your living expenses. A Licensed Insolvency Trustee can help go through your retirement budget to determine how much you can afford.

Bankruptcy does not require you to make ongoing monthly payments. Non-exempt assets are liquidated to pay back your creditors, and any debts remaining are discharged. Bankruptcy can be a good option for seniors with limited income, but you have to be careful about considering your assets and savings, or you could lose more than you bargained for.

What Assets Are Exempt from Bankruptcy?

Bankruptcy can feel like an intimidating prospect if you have assets on the line. It helps to know which assets are exempt from bankruptcy before you explore your options further.

Exempt Assets

RRSP: Your RRSP savings and RRIFs are exempt from bankruptcy proceedings, except for contributions made within 12 months of filing. RRSPs are often some of the largest savings available to seniors, and when they get into debt, they consider draining it to pay back their creditors.

That can be a major financial mistake that leaves you without enough savings for your retirement. Because RRSPs are protected from your creditors, bankruptcy may be a better way forward.

LIRAs, RRPs, and Pension Plans with Life Insurance: Locked-in Retirement Accounts, Registered Pension Plans, and pension plans with life insurance are likewise protected from bankruptcy.

Home Equity to a Limit: This is where bankruptcy can become complicated for seniors. If you don’t own a home, you have little to worry about. If you do, but you have less than $10,833 of equity it is exempt from bankruptcy. Often seniors have had more time to pay down their mortgages and may have equity beyond that limit.  In such a case, none of the equity it is exempt, and you should speak to a Licensed Insolvency Trustee who can help you navigate this situation.

Non-Exempt Assets

TFSA: Tax-Free Savings Accounts and investments made with them are not protected, which is why some choose to invest in an RRSP first, regardless of which account makes more sense from a tax perspective.

Investing in a TFSA often makes sense if you earn less than $50,000 per year, and it can also be useful if you still have money to spare after making the maximum contribution limit to your RRSP.

The TFSA was only introduced in 2009 and compared to younger investors, and seniors likely have much more in their RRSPs. However, if you have made TFSA contributions, it’s important to know that they don’t receive the same protection.

Rental Income Property and Vacation Homes: Properties that are not your principal residence can also be seized in bankruptcy. This is important for seniors who have invested in rental properties to make up part of their retirement income.

If you have rental property income, you’re more likely to be able to afford the monthly payments on a consumer proposal, which does not touch any assets.

Avoid Debt in Retirement

Borrowing when you’re retired can be a dangerous proposition. Without employment income, paying back high-interest debts can put you in a difficult position. The high interest rates on credit card balances can make it extremely difficult to pay them off on a fixed income. Even low-interest loans like a home equity line of credit (HELOC) can put you in danger. Though many see HELOCs as a form of senior debt financing, if you fail to make payments, you can jeopardize ownership of your home.

Be careful where you borrow, and if you’re already drowning in debt, learn more about your debt relief options.

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt, call us at 1-844-962-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

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I was quite nervous and a little embarrassed that I needed financial advice. I met with Jerry Janiec and he was very helpful. He made me feel comfortable and explained everything in easy to understand terms so that I understood what my options were. I would recommend David Sklar & Associates for anyone in my position.
Melissa Blackburn
19:53 17 Nov 22
I was fortunate enough to be referred to David Sklar & Associates Inc. by a family member. Now in the10th month of a Consumer Proposal process, I am very impressed with the organization, professionalism and impeccable customer representation that I have experienced. To this effect, I amparticularly thankful to Jerry Janiec and Rhoda Lewis for their excellent work.
Suzanna Vaclavik
12:21 16 Nov 22
Recently dealt with Christine at David Sklar & Assoc. and worked out a Consumer Proposal to put forth to my creditors for my Credit Card debt. She was very courteous, professional and put me at ease with a proposal that I can afford on a monthly basis, which will eliminate my debit in a reasonable timeframe. I would recommend Christine and this firm in a heartbeat. Very happy with the service and attention I got !!
Patrick Kovanchak
01:59 15 Nov 22
Excellent customer service. Special thanks to Olga for being prompt and helpful. She’s a star. Bibi is helpful as well. Great agency to work with.
Fady Tadros
19:28 14 Nov 22
After seeing your commercial play on CP24, I realized that it addressed all the questions and concerns I had about my financial situation. It all started with my one phone call to your office. I had the extreme pleasure of working with Cori Naron at your St. Clair West office in September 2022. She took the time to explain what my options were knowing that it was a very stressful situation with my debt load. She made me feel at ease with my decision to file a consumer proposal and outlined the benefits to me. She is thorough and her attention to detail is outstanding. While it takes a little while to reap the benefits of making this hard decision, she took the time to reassure me that it was in my best financial interest. Well done David Sklar & Associates for having such an amazing representative at your company and for allowing me to "get a fresh start"!
David
14:31 14 Nov 22
Very highly perfection individual, well executed and greatly knowledgeable in his work, which guided me me the right decisions making opportunities. Thank you.Sincerely, Peter Romasz
Peter Romasz
20:18 13 Nov 22
Trina Powell was very helpful and made the process very easy. Thanks again for all your help.
Jennifer Hager
17:59 06 Nov 22
Jerry is a caring, trustful, knowledgeable and competent Sklar associate. He understood my needs and quickly went to work on my behalf. Ever indebted to David Sklar and Associates and especially to Jerry for his professionalism and caring approach.
David Craig
19:31 31 Oct 22
Jerry Janiec is very knowledgeable and very helpful everything he explained to me was straightforward and very easy to understand. I'm very pleased to be working with Jerry to become debt free. I will definitely be recommending to any friends or colleagues your services.Thank you again for helping me get on the road to be debt free. 5 Stars is well deserved.
Christopher Rakobowchuk
17:41 27 Oct 22
Hi there! I am very glad to met this company, especially Jackie Stanley. Thanks for her great work and help me to save my money! Very appreciable!
Mehri Agil
02:43 26 Oct 22
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