Growing Old Gracefully, An Investigation into the Growing Number of Bankrupt Canadians over age 55 — Part 5

V. Consumer bankruptcy as an economic adjustment tool

The study found that 63% of the total bankrupts over age 55 were age 55 to 65, indicating that this is a very high risk period for financial distress. While the causes of bankruptcy were not available for the entire data set, for the sample of 1,000 files, 16% of bankrupts in this age category reported job loss as the primary cause of bankruptcy. In most of these cases, the bankrupt did not report new employment that generated surplus income within the meaning of the BIA.

Out of the 7,797 bankrupts over age 55, 28% of the total bankrupts over age 55 were between ages 65 and 74 and 8% were 75 and older. That 8% represents 624 people, a relatively high number for that age group.

Our analysis of the data suggests that consumer bankruptcy is increasingly used as an economic adjustment tool for the aging Canadian population. As the figures below will indicate in greater detail, credit card debt was very high across all age groups. More than 85% of bankrupts over age 55 held credit card debt, with a median credit card debt between $13,338 and $15,610. Bankruptcy appears to have been a mechanism to get out from under these large debts and the spiraling cycle of high interest rates and the inability to pay off the debt.

The issue of credit card debt has been studied by bankruptcy scholars in the United States. Elizabeth Warren observes that the profit margins of credit card issuers have increased substantially since the early 1980s and that during highly profitable periods, credit card companies are more likely to give credit cards to marginal borrowers and borrowers already loaded with debts because they increase their overall profits from the interest payments from these borrowers even though it also increases the default rate⁹. She cites economist Lawrence Ausubel's work, which found an extremely high rate of correlation between credit card defaults and bankruptcies in the United States¹⁰. Another study in the US found that credit card debt among indebted seniors (over age 65) increased by 89% between 1992 and 2001, with 73.7% of seniors holding credit card debts in 2001¹¹.

While the figures are not directly comparable to Canadian figures, it does indicate that credit card debt is growing among older people and that there is likely a correlation between credit card debt and financial distress among those over age 55. Given the high interest rates on credit cards, older debtors who do not have an income stream to cover the interest rates are more likely to default on the credit card payments. Bankruptcy becomes a means of relieving the financial distress and having a "fresh start" in terms of the credit card debt.

The OSB data indicates that 15.3% of all individual bankrupts in Canada were over age 55 in 2003. In 1993 this figure was 6.9%; hence it has more than doubled in the past decade. At a time when it is expected that individuals will have accumulated sufficient assets to carry themselves through to their retirement years, this increase in the bankruptcy rate of Canada's aging population is of concern. The very nature of bankruptcy suggests that there are few assets remaining, those limited assets for basic needs that are exempt from seizure by creditors. Unlike younger consumer debtors that can utilize the bankruptcy provisions to shed onerous credit obligations and have a "fresh start" in terms of earning capacity, credit history and quality of life, older consumers, particularly those over age 65, are less likely to be able to recover economically and socially from the bankruptcy. The aging population and shifting social safety nets and familial supports are likely contributors to this trend, although we were not able to conclude that definitively from the data available.

A. Regional Rates of Bankruptcy

There are considerable regional differences in the growth in the number of consumer bankruptcies. The study examined whether the numbers for those over age 55 who were bankrupt were at the same rate as the general population.

Chart 1 illustrates the percentage of bankruptcies per province, compared with the percentage of general population in each province. Bankruptcy rates vary across provinces, with Newfoundland and Saskatchewan having proportionately more bankrupts than the percentage of overall population. Newfoundland has 1.7% of Canada's population, 1.6% of those over age 55 in Canada and yet has 9.5% of Canada's older bankrupts. Saskatchewan has 3% of Canada's population and 6% of the country's older bankrupts. Older Ontarians are less likely to be bankrupt, representing 38% of the population over age 55 and 24% of older bankrupts. Similarly, while Manitoba has over 4% of the Canadian population, it has only 1% of the bankrupts in this age group.

In contrast, in British Columbia, Alberta, Québec, Nova Scotia and New Brunswick, the percentage of bankruptcies over age 55 was within one percent of the percentage of population over age 65. Hence there were no regional discrepancies observed in two Maritime Provinces. By contrast, Newfoundland's bankruptcy rate for aging individuals far outstrips the other Maritime Provinces and Canada as a whole. The Nova Scotia and New Brunswick figures are particularly interesting because it flies in the face of the general perception that the entire Maritimes is economically depressed, with lack of jobs being a key feature of the economy.

Chart 1
Percentage of Bankruptcies per Province (share of population)

B. Sources of Debt

The full data set also generated information on the sources of debt, with credit card and mortgage debt comprising the largest source of financial pressure. More than 85% of the bankrupts held credit card debt, with a median credit card debt between $13,338 for bankrupts aged 55-59 and $15,610 age 75 and older.

Table 1, Sources of Debt, illustrates that the percentage of bankrupts with credit card debt increases as individuals get older and the amount of that debt also increases, notwithstanding the fact that the oldest individuals are unlikely to have employment income to meet these debts. One observation made by the trustees that assisted in framing the questions for the study is that often individuals who have successfully carried and paid off credit card debt during their employment years, do not adjust their standard of living or financial practices on retirement, and then find they are unable to pay the credit card debt.

Table 1 also indicates that 17% of bankrupts held mortgages, and the median value of mortgage debt lay in the range $48,140 to $66,452. While this figure raised the question of whether bankrupts were refinancing their homes as an economic survival strategy, we were not able to answer this question with the data available. This would be important information to try to gather in future empirical study.

Only 3% of bankrupts owed individuals money and both the percentage of bankrupts and the amount owed steadily decreased with age. Only 2% of those over age 75 owed individuals, yet 90% of this group had credit card debt.

Overall, 32% of bankrupts over age 55 owed money to finance companies, with a median debt of $8,500. The median amount did not vary much across the age groups, except for those over age 75. 42% owed money to banks, and the median debt declined from $11,627 for the age 55-59 group to $7,700 for the 70-74 age group. It rose, however, to $9,569 for the over 75 group.

Table 1 – Sources of Debt

	Credit Cards		Mortgages		Bank Loans		Finance Co.		Individuals
55-59	85%	13338	21%	66452	47%	11627	36%	9987	4%	9500
60-64	86%	14362	20%	56000	43%	10333	33%	8950	3%	5000
56-69	87%	13952	16%	48140	41%	9848	35%	8000	3%	4250
70-74	87%	13958	11%	65441	35%	7700	32%	8000	2%	6950
75 +	90%	15610	8%	53000	30%	9569	23%	5244	2%	4465

Another indicator that bankruptcy is being utilized as an economic adjustment tool is the ratio of assets to liabilities. Chart 2 indicates that there was a very high liability to asset ratio. The median level of liabilities declined monotonically from $40,796 for the 55-59 age group, to $23,739 for the over 75 age group. Similarly the median level of assets declined monotonically, but from $6,463 to $2,501.

Chart 2
Assets and Liabilities

C. Gender and Marital Status

55% of all bankrupts over age 55 were male and 45% were female. While one working hypothesis had been that an increased number of older women may be filing for bankruptcy because of inadequate income support during earlier years, these figures are similar to the gender breakdown for bankruptcies in all age groups in 2004 (55.5% male and 44.5% female)¹². Moreover, compared with general population figures, proportionately fewer women over age 55 are bankrupt, as they comprise 50.5% of the Canadian population, but only 45% of those over age 55 who file for bankruptcy¹³.

By far the majority of bankrupts over age 55 were married. Charts 3 and 4 illustrate that more than 3,000 bankrupts in this age group were married, 40% of all those over age 55. Another 5% were living common law with a partner. Over 15% were widowed at the time of filing and 20% were divorced.

Chart 3 Marital Status- total numbers
Marital Status

Chart 4 Marital Status- by percentage
Marital Status

D. Surplus Income Payments

As Chart 5 illustrates, almost 80% of those over age 55 did not have the resources to make surplus income payments. This reflects figures nationally, but interestingly, was not higher than the national figures for all age groups, as originally anticipated. The rate is interesting because the earning potential of a number of these people would be limited, depending on their age or health. Those who were or are making surplus income payments at the various dollar amounts, vary, but never reach 10% of the group studied.

Chart 5 Surplus Income Payments
Monthly Amount

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⁹ Elizabeth Warren, "The Bankruptcy Crisis" (1998) 73 Ind. Law Journal 1079 at 1083.

¹0 Ibid., citing Lawrence M. Ausubel, "Credit Card Defaults, Credit Card Profits and Bankruptcy" (1997) 71 Am. Bankr. Law Journal 249 at 250.

¹¹ Heather McGhee and Tamara Draut, "Retiring in the Red", Briefing Paper (New York: Demos, 2003).

¹² Office of the Superintendent of Bankruptcy, An Overview of Canadian Insolvency Statistics, (Ottawa: Industry Canada, 2006) at 3.

¹³ Statistics Canada, Labour Force Survey, cited in ibid. at 3.