Retirement means bankruptcy for many seniors

Depressed senior man looks over stacks of bills. Stock photo by Getty Images.

An exhaustive new bankruptcy report paints a particularly grim picture of seniors as the fastest-growing group of Canadian debtors.

Which is saying something, considering our apparently insatiable appetite for debt. Canadians set a record high for household debt last year with a ratio of 163.3 per cent, meaning for every dollar we earn, we’re spending $1.63.

It’s even worse for seniors though, as the household debt ratio is part of a parade of scary stats compiled in Joe Debtor: Marginalized by Debt, the study from bankruptcy firm Hoyes, Michalos & Associates Inc.

Among those numbers, the report says senior debtors: 

  • Carry the highest debt-to-income ratio of any demographic at a staggering 260 per cent.
  • Owes $69,031 in unsecured debt (basically any loan made without collateral, such as credit card debts or medical bills).
  • Have the highest tax debt of all age groups at $12,571.

“Crippling debt occurs over time,” the report notes. “Seniors build their debt burden over a series of years, then when they reach retirement, they turn to additional forms of credit to keep up with their payments.” 

That debt burden accumulates in many ways: inflation, medical bills, expenses and loans from the “bank of mom and dad.”

A major problem outlined in the report, which compiled data from nearly 6,000 personal insolvencies from 2013 and 2014, is that seniors have only subprime lending options available to cover their debts, leading to an ugly trend.

“Banks only want to lend to people who don’t need the money,” explains bankruptcy trustee J. Douglas Hoyes, who co-authored the report. “So if you’re already in debt and perhaps if you are already retired and therefore on a fixed income, you can’t go and get a line of credit at a one-per-cent interest rate.

“So there’s this shift. People who are in trouble don’t have access to this lower-cost form of borrowing and that’s why we’re seeing seniors using payday loans now. Which is just stunning to me but that’s what’s happening.”

But payday loans are an expensive quick fix. Once senior debtors go that route, they’re trapped in a vicious cycle, Hoyes says.

This leaves them with no real option except bankruptcy or a consumer proposal (a negotiated arrangement to pay creditors a portion of the outstanding debt).

Learn about the law: Bankruptcy

Hoyes advises the best strategy for avoiding that vicious cycle is to plan ahead.

“Don’t retire with debt,” he insists. “Once you go on a fixed income, you’ll discover that your expenses are not fixed. Your rent, hydro and grocery bills are going to go up [faster than your pension], so you’re getting squeezed every year.

“You don’t want to have debt when you retire because that’s just one more expense that you don’t need.”

He also advises consumers not to overextend themselves in these days of low interest rates. He worries that when rates change, many people will “tip over the edge” into insolvency.

“Right now we are insulated from the fact that we have high debt levels because interest rates are so low,” he says. “It hasn’t really hit us.

“If you start smoking, you don’t get lung cancer the first day. But 30 or 40 years later you will. Unfortunately today it’s the same with debt. You borrow, you get to buy the house, the car and everything you wanted, that’s great. But the payments come later.”

Find a Lawyer