Should I File? Senior, Pension Income & Credit Card Debt

The number of retired people earning a pension income, carrying credit cards, and line of credit debts is growing significantly. Unfortunately a fixed pension income can only go so far.  When you pile debt payments (including interest) on top of other life costs, it is easy to see how seniors find themselves running out of money at the end of the month.

There comes a point when many seniors realize that they will not able to pay off their debts and the stress of that becomes too much.  In the past they might have always paid their debts, but because they carried their debts into retirement where they now have a fixed income, this isn’t possible.  If they miss a payment, the collection calls and letters begin which only adds to their worries. They need a solution.

So Should a Senior File Bankruptcy?

Filing for bankruptcy will legally eliminate their debts. They no longer have to pay their debts back and collection calls stop.  Effectively, they do not have to worry about the debt any more.

Whether or not they should file however depends on what their income sources are, and whether or not they have any other assets. It’s better to file a bankruptcy or consumer proposal prior to depleting your savings. RRSPs in Ontario are exempt from bankruptcy with the exception of contributions made in the past twelve months before filing.

Are Seniors Creditor Proof?

If a senior only has credit card and bank debts, they rent, they do not own significant assets, and do not bank with any bank they owe money to, then they might be what we would call ‘judgement or creditor proof’.

With the exception of Canada Revenue Agency for unpaid income tax debts, creditors can’t garnish pension income. That means if a senior’s sole source of income is their pension, and they have no other assets, they could follow a ‘do nothing’ strategy.

The downside of this strategy is that collection calls will continue. They will need to explain to any collection agents who do call that they are on a fixed pension income and can’t pay.

If the senior has other sources of non-pension income, such as a part-time job, this income can be garnisheed and in those circumstances bankruptcy may be necessary.

What About Other Assets?

Many seniors own their own house and they may have some equity in their home. In order to protect their home a senior may want to consider filing a consumer proposal as an alternative. Any proposal payment plan will need to be affordable from their monthly pension income but must also meet the expectations of their creditors. If a creditor is getting more from a consumer proposal than they would get in a bankruptcy, they’re typically open to the agreement.

Each situation is different and should be reviewed carefully with a licensed bankruptcy trustee. Contact an Ontario Licensed Insolvency Trustee for help if you, or someone you love, is a senior facing financial problems.