Jonathan Chevreau wrote an interesting article in the Financial Post titled: Government gives with one hand, garnishees with other. In the article, Mr. Chevreau tells the story of “Sam” (not his real name), a 70 year who owes a lot of money to Canada Revenue Agency (CRA) for back taxes. CRA is “garnisheeing” all of Sam’s pension to repay his tax debt.
A week earlier Mr. Chevreau wrote an article called No immunity to bankruptcy where he quoted me as saying that between 7% and 9% of all people who go bankrupt through my firm are over 60 years of age. That’s true, and those statistics hold true here in Cambridge as well. More information can be found in his blog post on the number of senior citizens filing for bankruptcy.
I was quoted in the first article as saying:
Hoyes guesses half the seniors he sees choose bankruptcy, although he lays out four less extreme options. He points out that most retirees don’t need to file for bankruptcy because the main reason for considering it is to ward off creditors that threaten to garnishee wages or seize assets. Retirees have no full-time wages, so don’t have significant wages that can be seized. Also, “it is very difficult, if not impossible, for a creditor to garnishee a pension,” Mr. Hoyes says.
I stand by that quote; it is very difficult for a normal creditor, like a credit card company, to garnishee a pension. However, that’s not the case with CRA, as Sam discovered.
Revenue Canada does not need a court order to take part, or all, of your CPP if you owe back taxes. They use what is called a “right of set-off”. In simple English, it means that “if you owe us money, and we owe you money, we won’t send you any money until you pay us what we are owed.”
So what can you do if you get a pension, and you owe Canada Revenue Agency money? As I described in the article, you have a number of options:
First, file all outstanding tax returns. If you have not filed your taxes, CRA will not be willing to make payment arrangements with you. All tax returns must be filed, even if you are not able to pay the full balance owing.
Second, I suggest you talk to CRA. If you owe a manageable amount of money, you may be able to make payment arrangements directly with CRA, and repay the amount owing over a reasonable period of time.
If that doesn’t work, you could attempt to get a debt consolidation loan to repay them in full. That may only be possible if you have assets, like a house, to pledge as security, or if you have a co-signer.
Your next option would be to file a consumer proposal, where we help negotiate a settlement with CRA and all of your other unsecured creditors. To make a proposal work you need to have enough income to make monthly payments, while still paying your monthly living expenses.
If none of those options work, the final option is personal bankruptcy. However, as I was quoted as saying in the Financial Post, personal bankruptcy may not be the best option for you, so I suggest you call my office in Cambridge at (519) 622-3773, or e-mail me to set up a time to meet and discuss your options.
