Seniors in Ontario make up 30% of bankruptcies: report
Retiring with debt a recipe for tight cash flow and future insolvency
Seniors and those approaching retirement are making up a growing proportion of those filing for insolvency in Ontario and have bigger debts compared to younger people, a report said Monday.
And while credit card debt makes up the largest portion for them, payday loans are a growing concern for seniors, said Doug Hoyes, co-founder of bankruptcy trustee firm Hoyes, Michalos & Associates Inc. which did the report.
"It is a treadmill that you can never get off of," Hoyes said of the short-term loans that often carry high interest rates.
According to a review of 6,000 insolvency filings handled by the firm in 2013 and 2014, the share of debtors aged 50 and over increased to 30 per cent compared with 27 per cent in the previous two-year period.
Payday loans on the rise
Hoyes said the number of people filing for insolvency has been trending down in recent years, but use of payday and fast cash style loans is on the rise.
The percentage of debtors with at least one payday loan increased to 18 per cent compared with 12 per cent two years ago, while the average total payday loan debt for those with them rose 12 per cent to $2,749.
Seniors were less likely to use payday loans at just nine per cent of those over 60 filing for insolvency with one, but those that did owed $3,693 on average.
Hoyes said some of the growth in seniors filing for insolvency is due to more people reaching retirement as baby boomers get older.
And while for some that has meant selling their home for a big profit and a comfortable retirement, for others, medical bills, job loss or divorce have crippled them financially, he said.
Retiring with debt a disaster
"Unfortunately if you go into retirement with debt, you've got a huge problem because now your income has gone down and you can't service it," he said.
The report found seniors and pre-retirement debtors have accumulated the highest unsecured debt load among all age groups. On average, debtors 50 and older filing for insolvency had $68,677 in unsecured debt, while those over 60 had total unsecured debt of $69,031.
That compared with an overall average of $56,545 in unsecured debt for those filing for insolvency.
The Bank of Canada and others have pointed to consumer debt as a key risk to the economy.
Statistics Canada reported earlier this year that households in the fourth-quarter of last year owed about $1.63 in consumer credit, mortgage, and non-mortgage loans for every dollar of disposable income.
Hoyes said though the report was based on insolvency filings in Ontario, he suggested the trends would likely be similar in other jurisdictions across the country.
"The basic trends are the same. The population is aging. We know that debt levels are increasing across the country. It is probably pretty comparable across the country as well."
And he added, if interest rates start to climb, it could spell serious problems for those with debts with variable rates of interest.
"I don't think we are prepared should that happen. We've been numbed to it because interest rates have continued to fall for years and years," he said.