Growing Old Gracefully, An Investigation into the Growing Number of Bankrupt Canadians over age 55 — Parts 7 and 8

VII. Qualitative Survey

As noted in the discussion on methodological challenges for surveying a vulnerable population, the study was able to interview only 16 people of the 400 contacted, hence the sample does not provide any empirically value information. The 16 people interviewed were from Ontario (4), British Columbia (3), Québec (2), Newfoundland (4), Alberta (1) and Saskatchewan (1). Both Québec interviews were conducted in French.

Notwithstanding the fact that there is no statistically significant information, given the nature of the responses, it is helpful to provide the highlights as they provide a texture to the data. In the future, it would be helpful to consider whether this data could be collected when individuals are still in the bankruptcy process, through trustees or staff of the OSB.

Over extension of credit, medical reasons and insufficient income were principal reasons for the bankruptcy, which aligns with the data set of 1,000 bankrupts. More than half of those interviewed used their credit card to pay utilities bills on a regular basis. Although not statistically significant, this was an important insight that may help to explain why credit card debt is so high among older people. Similarly, 37.5% used a credit card to pay for groceries several times per month within the preceding year. It would seem that credit card debt, at least in this small sampling, plays a number of roles that it traditionally has not in a prior generation, and that individuals are paying extraordinarily high interest rates for goods and services that could be viewed as necessities.

31% had used the credit card in the two years prior to bankruptcy to help family members, which aligned with information that we had gathered from trustees, but which did not appear in our data analysis. 25% had co-signed a loan for a family member in the two years prior to their bankruptcy. 50% of those loans were for a mortgage and remainder for business loan for a family member. Of those signing for a business loan for a family member, all had signed a loan for a child and more than two-thirds reported that the business had failed.

31% cited family related issues that caused the financial distress. In some cases, individuals talked about children losing employment and moving back home (4 cases), while one was not specific. 19% reported that health care costs contributed to financial distress, but only 12.5% said it was the principal cause of bankruptcy.

Of the 31% that reported that the bankruptcy was caused in part by a job loss, more than three-quarters were not able to find employment again. When asked if any social activities made their financial situation worse, 31% reported that home shopping channel, casino visits, lottery tickets or on-line poker influenced their financial situation. This information may flag that further study needs to be undertaken as to the role of social activities in bankruptcy. While one working hypothesis of the study was that gambling was on the increase among older bankrupts, gambling as the primary cause of bankruptcy was, in the 1,000 sample, not significant as it was reported as the primary cause of bankruptcy in only 2.44% of cases.

75% reported that the bankruptcy had brought financial relief, although the economic situation had not really improved for over 56%. This is of concern in thinking about the fresh start philosophy for seniors.

100% of those surveyed said that it was difficult to tell family or friends about the bankruptcy, some discussing at quite length feelings of shame, fear and humiliation, particularly in having to tell their children. 25% responded that if they had someone to talk to about finances before the bankruptcy, it would have helped.

VIII. Conclusion and Further Research

Presumably habits of spending and money management are inculcated long before the age of 55, and that if anything, financial planning at an earlier age helps to reduce the risk of shortfalls in retirement or the approach thereof. The rise of bankruptcy thus calls out for explanation. Possibly there are new temptations; shopping channels or gambling, or the imprudence of children enlisting the financial aid of parents forge two of our working hypotheses. But neither was borne out by this preliminary study. Only 2.44% reported gambling as the principal reason for bankruptcy, yet trustees had reported that the incidence seems much higher. It may be that there is a stigma attached to gambling such that it is not easily declared as the reason. Only 2% report children moving back home or financial support of children as the principal reason for bankruptcy, although here again, a limited sampling of trustees had indicated that in their observation this trend is on the rise.

One question the study had hoped to explore was the percentage of consumer bankrupts that are prejudiced by not having their RRSPs protected from seizure for the benefit of creditors, compared with those who have the exemption protection for their registered pension plans. Currently under the BIA, benefits from registered pension plans and RRSPs associated with life insurance policies are generally exempted from seizure. However, RRSPs held by banks, brokerages or self-directed RRSPs are not exempt from seizure. With the move in Canada from defined pension plans to defined contribution plans and the practice of encouraging employees to invest in self-directed RRSPs, our bankruptcy policy and pension policies may be failing to align in terms of protection for aging debtors.

The Senate Committee recognized this problem and recommended exempting RRSPs from seizure, while acknowledging that this would reduce the moneys available for distribution to creditors. This has been recognized in part in c. 47, amending the BIA, not yet proclaimed in force. Unfortunately, the study did not shed any light on the question of the current mix of registered pension and RRSP assets that are treated differently in consumer bankruptcy. In part, this was due to the way in which the data is collected. The OSB may wish to consider separating out different kinds of pension savings, in order to document this information in the future.

It was also unclear from the study as to whether current exemptions of property from seizure for all bankrupts appropriately reflect the needs of older debtors; and whether we need to consider public policy reforms that assess basic needs differently for older citizens. This information could not be analysed using the data available, but should be studied by the OSB in the future.

Finally, the OSB should consider further qualitative study through interviews. While the information is difficult to obtain, it dramatically enhances the quantitative statistics. Design of any future such study would, however, have to take account of the issues raised by university ethics boards in terms of how to acquire the information from a population that is particularly vulnerable.

The data in this report only provides a small glimpse into the economic, legal, social and philosophical factors that are important to understanding over-indebtedness or bankruptcy of older consumers. A better understanding of these dynamics is required before one can assess whether there particular policies or strategies that could be deployed to address or prevent financial distress in this age cohort. One question that requires further exploration, but which was not possible for this report, is whether bankruptcy is the appropriate mechanism for relief of over-indebtedness for those that are approaching the limits of their income earning years.