Can creditors seize or garnish government retirement benefits?

2021-04-13   minute read

Lifestyle Debt

Alternatives to Bankruptcy

One of the biggest concerns among indebted pensioners is whether creditors have the right to seize or garnish their Canada Pension Benefits (CPP) and Old Age Security Benefits (OAS).

The good news is the Old Age Security and Canada Pension Plan acts expressly state, “the benefits shall not be assigned, charged, anticipated or given as security, and any transaction claimed to do so is void.” This means OAS and CPP benefits cannot be ordered payable by the Courts if a creditor sues pensioner.

However, there are circumstances where these protections do not apply — and creditors may indeed seize CPP or OAS payments — including:

Income tax arrears

Canada Revenue Agency (CRA) has extensive powers to collect outstanding or unpaid income taxes. This may include garnishing any income earned (at the source of the payment) or deposited into a pensioner’s bank accounts — including OAS and CPP benefits.

Typically, CRA will either inform the pensioner’s financial institution of the required amount to garnish or communicate directly with the office responsible for CPP and OAS benefits. These payments will continue either until the arrears are paid in full, the pensioner manages to agree on a payment arrangement with CRA, or a stay of proceedings is applied via a Bankruptcy or Consumer Proposal.

CPP and OAS overpayments

The value of CPP and OAS benefits differs from pensioner to pensioner based on several factors including age, employment / contribution history, and tenure of citizenship. The federal government periodically audits payment amounts to ensure people aren’t being under or overpaid.

In the event of an overpayment, either program is within its right to deduct a balance from the pensioner’s future pension payments in the event of an overpayment until the amount is repaid. Thankfully the process also works in the opposite direction in the event of an underpayment.

Maintenance or support arrears for spouses and/or children

The Provincial Maintenance Enforcement program has sweeping seizure privileges to cover child and spousal support/maintenance arrears — including CPP and OAS. Because these payments are deemed necessary and based on the individual’s financial means, it is also difficult to petition the courts to reverse this kind of garnishment. Even a Bankruptcy or Consumer Proposal are not sufficient to eliminate these types debts.

Pension funds deposited with a bank or credit union where the pensioner owes money

While financial institutions cannot garnish CPP or OAS funds, per se, the do have the right to set off outstanding or overdue payments with funds deposited with their respective bank or credit union.

For example: if a pensioner is behind on a credit card, loan or line of credit with ABC Bank, and the pensioner’s CPP and OAS payments are also deposited with ABC Bank, ABC Bank may withhold part of those (and any other deposits) as payment against the outstanding debt.

You have options

It can be challenging to navigate unmanageable debt on a fixed income, even more so when your necessary income is subject to seizure or garnishment. The good news is you likely have options to eliminate your debt and protect your standard of living — and MNP offers Free Confidential Consultations to review your entire financial situation and review your opportunities for a financial fresh start.

As we’ve already noted, both Bankruptcy and Consumer Proposals can put an immediate stay of proceedings on many types of garnishments and court judgements on top of offering providing a faster, more affordable way to eliminate your debt. But we can also discuss a wide range of other options ranging from budgeting to credit counseling and credit consolidation to help alleviate the pressure from creditors and stretch every dollar further.

Don’t wait until your retirement benefits start getting seized ­— or until you’re financially unable to cope with a seizure of benefits. Find out how you can defeat your debt today.

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