Debt Relief Experts
Many more seniors are carrying substantial consumer debt into retirement. What happens when you can’t pay back that debt? We’ll explore debt forgiveness, relief options, and help tailored to seniors.
Table of Contents
Understanding the Debt Challenge for Seniors
Recent studies show that seniors are increasingly carrying debt into retirement:
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Nearly 3 in 10 insolvent debtors (29%) are pensioners and pre-retirement seniors aged 50 or older.
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The average unsecured debt for insolvent seniors is roughly $61,000, including $21,000 in credit card debt.
There are many reasons why people carry debt beyond their 50s and into their 60s and even 70s. It’s unrealistic to think it’s as simple as seniors living beyond their means. The transition to a reduced income after retirement can make it challenging to maintain previous lifestyles or handle unexpected expenses. This financial strain is often exacerbated by rising living costs, particularly in areas such as food, energy, and medical expenses. Many seniors also face the added financial pressure of supporting adult children or aging parents, stretching their resources even further. Additionally, unexpected health issues or job loss in the years leading up to retirement can derail even the most carefully laid financial plans, leaving seniors struggling with debt as they enter their retirement years.
Do You Have a Debt Problem?
Here are some debt warning signs that you may need to speak with a professional to get your debts under control:
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Your debt balances are growing as you use credit to make ends meet.
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You are only making minimum payments on credit card balances.
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You rely on a line of credit to pay the mortgage, rent, or make bill payments.
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You are thinking of cashing in your RRSP to pay down debt
What Happens When You Don’t Pay?
If you stop making monthly payments on credit card debts, utility bills, or loans, your creditors can take several steps to collect.
Collection calls are the first step. Many seniors find it stressful having a debt collector continue to call and send collection notices. Calls from debt collectors can create added stress if you are also dealing with medical or family issues.
Missed payments will lead to a negative mark on your credit report. Delinquent accounts in your credit history can lead to higher interest rates on new credit or when renewing a mortgage, and you could find any new credit application denied.
Can creditors garnish my pension?
In most cases, no. However, once your pension is deposited in your bank account, your funds can be at risk. If you owe money where you bank, your bank can seize the funds directly from your account and apply them to your unpaid credit card or bank loan. There are other exceptions as well to when creditors can garnish pension income with the most common being CRA for unpaid taxes.
Should I borrow from my RRSP to make debt payments?
Be careful not to drain your RRSP for debt repayment. If you have money set aside for retirement in an RRSP, RIF or pension plan, talk with a Licensed Insolvency Trustee about your options before using those funds to pay off debt. Most registered retirement plans are protected in a bankruptcy or consumer proposal in Canada. We caution people against draining their retirement nest egg if this only partially solves your debt problem.
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Debt Help Options for Seniors
If you are struggling with debt, the first step is to talk with a regulated debt professional like a Licensed Insolvency Trustee. Your trustee will review several possible debt solutions with you, including:
Doing nothing
If you have no assets and your only income is pension income, which cannot be garnished, you can tell most creditors, ‘I can’t pay’ and do nothing. There are a few exceptions, like the Canada Revenue Agency (CRA), but if you can deal with the calls, this can be a good choice if your income is limited.
Work out a payment plan with a credit counsellor
A Debt Management Plan (DMP) can be an effective solution for seniors struggling with unsecured debts such as credit cards, lines of credit, or personal loans. This structured repayment plan, typically arranged through a non-profit credit counselling agency, offers a way to consolidate debts and potentially reduce interest rates without taking on new loans. Fixed payments available with a DMP can help with budgeting on a fixed income. You must be able to repay all of our debts plus the additional credit counselling fees, which average 10% of the debt balances included in the program. If you are on a reduced income and owe simple debts like credit card debt with small balances, consider talking with a credit counsellor.
Consider government debt relief programs for seniors
While there’s no specific “debt forgiveness” program for seniors in Canada, some options can result in partial debt forgiveness:
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Consumer proposals can result in paying back only a portion of your debts
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Bankruptcy can eliminate most unsecured debts
Consumer Proposal
A consumer proposal is a government-approved debt relief program that can benefit seniors struggling with debt. This option allows you to negotiate with your creditors to pay only a portion of your debts, often resulting in significant debt forgiveness. Through a consumer proposal, you can stop interest charges and consolidate your payments into a single, manageable monthly amount. One of the key advantages of a consumer proposal for seniors is that it protects your assets, including most RRSPs and home equity, which can be crucial for maintaining financial stability in retirement. A Licensed Insolvency Trustee will work with you to propose a fair repayment plan to your creditors based on your income and assets. This option is often best suited for seniors with higher pension income or additional assets who can commit to making monthly payments. A consumer proposal can provide debt relief while allowing you to avoid bankruptcy and potentially keep your home or other valuable assets.
Bankruptcy
For seniors facing overwhelming debt with little hope of repayment, bankruptcy may be a viable option to consider. Bankruptcy is a legal process designed to eliminate most unsecured debts, offering a fresh financial start. When you file for bankruptcy, collection calls stop, which can provide significant stress relief for seniors dealing with debt collectors. Bankruptcy has long-term consequences on your credit and may require liquidating some assets. Despite these drawbacks, for seniors on fixed incomes with little to no assets and no ability to repay their debts, bankruptcy can offer a path to financial recovery.
It’s crucial to consult with a Licensed Insolvency Trustee to understand the implications of bankruptcy and to determine if it’s the right choice for your situation. Remember, bankruptcy should typically be considered a last resort, and not all seniors should file for bankruptcy.
Beware of Debt Relief Scams
As a senior seeking debt relief, it’s crucial to be aware of potential scams. Be wary of companies promising quick and easy debt elimination or claiming to offer special government programs for debt forgiveness. In Canada, there are no specific government programs that simply erase consumer debt. Red flags include demands for upfront fees, guarantees of total debt elimination, and pressure to act quickly. Legitimate debt relief services, including those offered by Licensed Insolvency Trustees, do not charge fees before providing services. Protect yourself by researching thoroughly, consulting only licensed professionals, and understanding your options. Be cautious about sharing personal financial information, especially over the phone or email. If an offer sounds too good to be true, it probably is. Remember, addressing debt challenges may take time and effort, but working with legitimate professionals like a Licensed Insolvency Trustee can provide safe and legal options for becoming debt-free. If you’re unsure about an offer or want to explore your options, consider reaching out to Hoyes, Michalos for a free, no-obligation consultation with Licensed Insolvency Trustees.
Avoiding Poor Borrowing Choices
Seniors carry the highest credit card balances of any age group we help, many with balances of $10,000 or more. More than half carry balances over $30,000. This is credit card debt build up over a lifetime. If you have balances on more than one credit card and are using one credit card to live while making minimum payments on the other, it is time to consider the options at the bottom of the article for debt relief.
Seniors are also increasingly turning to payday loans. Taking out a payday loan isn’t the solution if this month’s retirement income isn’t enough to pay the bills. Having to repay that loan from your next pension cheque puts you at a loss the following month.
Pre-retirement debtors should think carefully before taking out a debt consolidation loan to consolidate credit cards and other debts. A Home Equity Line of Credit (HELOC) may be attractive as payments are interest-only and, as a result, are quite low. Beware, however, that if you fail to make any refinanced mortgage payment, you are putting your home at risk. Make sure such a solution deals with all your consumer debt and that you can afford the monthly payments. Don’t let your credit card balances grow again in any debt consolidation scenario.
Similarly, reverse mortgages have risen, raising concerns about the number of seniors tapping into their home equity to pay for living costs.
Next Steps: Getting Help with Senior Debt
When facing debt challenges as a senior, seeking the guidance of a Licensed Insolvency Trustee (LIT) can be an invaluable step towards financial recovery.
The experienced LITs at Hoyes Michalos can assist you through every stage of the debt relief process, starting with a thorough assessment of your financial situation. They’ll help you gather and organize all necessary financial documents, ensuring a comprehensive understanding of your debts, assets, and income.
Your Licensed Insolvency Trustee will explain all available debt relief options, tailoring their advice to your unique circumstances as a senior. They’ll patiently answer your questions and address any concerns, empowering you to decide on the best path forward. Once you’ve chosen a course of action, whether it’s a consumer proposal, bankruptcy, or another debt relief strategy, your LIT will guide you through the entire process, handling the necessary paperwork and communications with creditors. This expert support lets you focus on regaining control of your finances and working towards a stress-free retirement.
Don’t let debt overshadow your golden years – take the first step today by reaching out to a Licensed Insolvency Trustee and exploring your options for a more secure financial future
Get a free consultation
If you are a senior with debt you can’t afford to repay, contact us for a free consultation. You may be surprised to know that almost one-third of the people we help are over the age of 50. You are not alone. Contact us for help today.
