A recent bankruptcy study by my firm found that the average person who files for bankruptcy in Canada is 44 years old. He is likely to be married, may have a mortgage, and owes almost $53,000 in unsecured debt. In fact, the clear majority of insolvent debtors, 77%, are between the ages of 30 and 59.
However, averages are deceiving and don’t always reveal what’s happening right now. Digging deeper into our study, we found that two age groups were filing for insolvency at a rate higher than in the past several years: millennials and seniors.
Millennials and Bankruptcy
According to Statistics Canada, roughly 75% of young people in 2011 attended some level of college or university by the age of 21 and this rate may be even higher today. The problem is that some of these young people are graduating with massive student debt; an average of $28,000. Paying off this level of debt over ten years requires an average payment of around $350 a month, depending on whether the student debtor takes advantage of any interest grace period. A lot must go right over those ten years for someone to keep up with that level of debt repayment, like finding a well paying, stable job and not taking on any other substantial debt in the meantime. However, a lot can go wrong between the ages of say 25 and 35: you get married; you or your spouse take time off for maternity leave; you buy a home and take on a mortgage; you lose your job or you relocate. Any of these events can put your student debt repayment plan in jeopardy. This is the dilemma faced by an increasing number of millennials who find themselves filing for bankruptcy due to student debt.
The fastest growing risk group among all age groups filing bankruptcy continues to be seniors aged 60 and older. Today, 15% of all insolvencies involve student debt. The average insolvent student debtor is 35 years old. They have been making payments on their student loans for an average of 10 years and yet still have a balance owing of almost $14,000. They are working, but are not earning enough to repay their student loans and make ends meet. They often turn to credit card debt and payday loans, making their financial situation worse.
There are special rules governing student debt and bankruptcy in Canada. The most important: you must have been out of school for more than seven years for student debt to be automatically discharged through a bankruptcy or consumer proposal.
Seniors Filing Bankruptcy
The fastest growing risk group among all age groups filing bankruptcy continues to be seniors aged 60 and older. This group now makes up 12% of all insolvent debtors filing a bankruptcy or consumer proposal. They carry an enormous amount of debt, built up over a lifetime. On average, they owe more than $64,000 in credit card and other debt.
Today, 15% of all insolvencies involve student debt. The average insolvent student debtor is 35 years old. They have been making payments on their student loans for an average of 10 years and yet still have a balance owing of almost $14,000. The biggest risk factor for seniors is carrying debt into retirement. Once retired, their income generally drops, making it difficult to keep up with repaying pre-existing debt. Often seniors end up borrowing even more money as their mortgage or credit card bills consume a significantly higher percentage of their now fixed, and lower, income. If you are approaching retirement, commit to lowering your debt as much as possible to reduce your risk.
An alarming trend is the growing use of payday loans among seniors. More than one in ten insolvent seniors owed money to payday loan companies and they had the highest level of payday loan debt of any age group. Payday lenders are happy to lend against any source of stable income, including pension income. However, this is not a good borrowing option because, more often that not, it postpones the cash flow problem. Caught in this trap, insolvent seniors who used payday loans ended up with more than three payday loans outstanding to three different payday loan lenders.
Consumer debt levels have risen dramatically in Canada. Carrying high levels of credit card debt, lines of credit, bank loans and relying on payday loans is a sign that you may be experiencing financial problems that could lead to bankruptcy. No matter your age, take stock of your situation. Make a list of your debts. Build a budget that accounts for debt reduction. Make a plan to eliminate your debt.
About J. Doug Hoyes
