Tuesday, March 25, 2014

Seniors and debt part two of two

Life is very difficult for many seniors who anticipated that their golden years would be a carefree retirement. Instead, according to the Vanier Institute for the Family, Canadians over the age of 65 have the highest insolvency and bankruptcy rates in the country. With increasing expenses and a significantly reduced income and return on investments, more seniors are contemplating bankruptcy; but is it the best and/or only option?

While it’s true that bankruptcy can eliminate many of your debts, people typically file personal bankruptcy as a means of protection from creditors. If you are working, bankruptcy will protect you from creditors garnisheeing your wages. However, if you are retired and your sole source of income is your pension, then there are no wages to garnishee. It is very difficult for a creditor to garnishee a pension with one notable exception. If you owe the CRA (Canada Revenue Agency) for unpaid taxes, they are permitted to garnishee all types of pension income under Section 224.1 of the Income Tax Act. It is rare that the CRA will garnishee your pension income, but it is a possibility. If you have a significant tax debt and the CRA has threatened a pension garnishment, bankruptcy is an option that has to be considered.

According to Statistics Canada, one in three retirees over 55 and two in three over 55 who aren't yet retired are in debt.

A recent TD Bank study has shown that older Canadians have increased their debt load by 15% (an average of $6000/person) from the previous year. Seniors living in Alberta, Ontario and Quebec had the highest rates of debt accumulation in 2012.

According to Boomers and Retirement, a new survey by TD Ameritrade, the average Baby Boomer is about a half-million dollars short on retirement savings.

The most important piece of advice we can give you is to eliminate debt! Carrying debt into retirement is a recipe for disaster. Once you retire and begin living on a fixed income you will no longer have the funds required to service the debt. Here are 5 tips for seniors in debt:
  • Postpone retirement if at all possible and pay down as much debt as you can. If working fulltime is not an option, consider part-time work.
  • Pay down credit card balances as quickly as possible. They are generally the highest-interest loans that seniors carry. You can also call the credit card company and ask for a lower interest rate. They will sometimes agree.
  • Limit the number of credit cards that you have.
  • Stay away from debt settlement companies! Consumers are continuing to be taken in by false claims offering to settle your debts for pennies on the dollar quickly and easily. The reality is that when something seems too good to be true, it usually is. Debt settlement companies exist for only one reason – to take your money! They will not help you solve your debt problems. There is no instant or quick fix for serious debt issues.
  • Protect yourself against fraud and/or abuse. Run away from get rich schemes. There are many scammers out there who have duped seniors out of their life savings and continue to seek out new targets.
Unfortunately too few Canadians are properly prepared for the financial reality of retirement. They get caught up in a downward financial spiral and some pass away leaving significant debt. The family is then left with the unpleasant options of paying the debt themselves or bankrupting the estate. If you are a senior in serious debt, consult a professional Trustee as soon as possible. 

Seniors in debt is a serious problem that continues to get worse. The right debt relief option you ultimately decide upon will depend on whether or not you have assets, who you owe money to, and how much you owe. For seniors in debt there are bankruptcy alternatives – credit counselling, debt consolidation, consumer proposals – which in many cases are better options than declaring personal bankruptcy.

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