Growing Old Gracefully, An Investigation into the Growing Number of Bankrupt Canadians over age 55 — Part 6

VI. Sample of 1,000 Files of Bankrupts over Age 55

As noted in the introduction, the current electronic database of the OSB does not capture separate fields for causes of bankruptcy. As a result, data in this study is drawn from 1,000 files of bankrupts over age 55, pulled randomly from across all regions. The reported causes of bankruptcy had to be manually extracted from the files, and then a method of standardizing the reported causes and inputting the data developed. There was a fair degree of consistency in how causes of bankruptcy were reported by individual bankrupts. However, it is important to note that while the individual completes the form declaring cause of bankruptcy, he or she may be influenced by the trustee's advice on how to report causes. While this may assist in a degree of uniformity, there is also some risk of less than full accuracy of reporting, as there is no standardized definition of how causes are to be reported. One recommendation to the OSB is that it consider providing a more standardized list of causes of bankruptcy, which could then be collected in separate electronic fields at the time of bankruptcy filing.

A. Sources of Debt

For comparative purposes, Table 2 provides a comparison of some of the sources of debt for the 1,000 sample population. It illustrates total liabilities and credit card debt across the entire sample of 1,000 bankrupts, analyzing the mean, minimum, maximum, and 25^th and 75^th percentiles. The median was taken as the most accurate picture of liabilities. Note that there was one debt at over $41 million in the age 70 to 74 category, which skews the average debt upward in that age group to $333,510. Yet the median debt for that age group was $28,061. By using the median, the study was able to draw a clearer picture of how total liabilities are reflected by age group.

Table 2 indicates that the median amount of liabilities steadily declines by age group, but that bankrupts age 70-74 and over age 75 continue to have a median debt of $28,061 and $24,942 respectively. Credit card debt thus figures very prominently in bankruptcy among the aging population. Whereas overall debt decreases as individuals are older, the amount of credit card debt increases, with a median of $18,713 for the over age 75 group, more than ¾ of their debt at the time of bankruptcy. In contrast, credit card debt is only about one third of the total liabilities of bankrupts aged 55-59.

This indicates that credit card debt rises when other fixed financing commitments, such as bank loans or mortgages are paid down. Since credit card debt does not require the guarantees, assets or income assurance that banks and other lenders require for more traditional loans, it is easier for debtors to acquire debt on credit cards at this age, possibly creating the wrong incentive effects. The credit card debt becomes proportionately higher as an individual ages.

Table 2 Comparison of Total Liabilities with Credit Card Debt

Total Liabilities
age group	mean	min	25th%ile	median	75th%ile	max
55-59	112,128	3,018	21,596	38,191	88,722	6,615,700
60-64	67,624	2,506	18,333	36,848	70,143	1,617,863
65-69	51,995	5,299	16,751	31,325	57,698	470,977
70-74	333,510	4,881	15,391	28,061	47,972	41,272,776
75 +	35,108	5,030	14,796	24,942	44,281	180,023
Credit Cards
age group	mean	min	25th%ile	median	75th%ile	max
55-59	19,733	100	6,492	12,398	23,174	206,221
60-64	19,462	333	6,681	13,569	24,170	149,851
65-69	18,716	270	7,336	13,384	23,314	124,835
70-74	17,908	472	7,391	13,929	23,370	133,938
75 +	22,713	367	9,631	18,713	27,457	91,838

Comparing the same total liabilities with private loans, one sees the same pattern. Whereas overall debt decreases as individuals are older, the amount of loans from private individuals increases. Both tables 2 and 3 analyze only those who have the credit card debt (85%) and those that have private loans (3%).

Table 3 Comparison of Total Liabilities with Private Loans

Total Liabilities
age group	mean	min	25th%ile	median	75th%ile	max
55-59	112,128	3,018	21,596	38,191	88,722	6,615,700
60-64	67,624	2,506	18,333	36,848	70,143	1,617,863
65-69	51,995	5,299	16,751	31,325	57,698	470,977
70-74	333,510	4,881	15,391	28,061	47,972	41,272,776
75 +	35,108	5,030	14,796	24,942	44,281	180,023
Credit Cards
age group	mean	min	25th%ile	median	75th%ile	max
55-59	19,382	765	1,800	8,300	24,000	105,000
60-64	8,945	1	3,000	7,500	10,000	30,000
65-69	13,421	1,400	2,000	2,500	8,206	53,00
70-74	44,318	4,500	4,500	19,500	108,953	108,953
75 +	10,490	6,479	6,479	10,490	14,500	14,500

B. Causes of Bankruptcy

Chart 6 illustrates the causes of bankruptcy over the entire 1,000 sample. Overall, 29% of bankrupts over age 55 reported over-extension of credit as the primary cause of bankruptcy.

15% declared medical reasons the primary cause, although it was unclear from the data whether this was the costs of care over and above the Medicare system or income loss due to medical reasons, or some combination of both.

Elizabeth Warren and Melissa Jacoby, looking at the situation in the United States, have suggested that when medical reasons are cited as a cause of consumer bankruptcy, the normal case is attributable to some combination of causes, specifically, direct health care costs, loss of income due to medical problems or loss of income due to caregiving responsibilities in connection with medical problems¹⁴. In the files studied in this project, a number of those citing medical reasons as the principal cause also cited loss of employment income; hence there is likely some linkage there.

12% overall reported insufficient income as the primary cause, while 11% reported loss of employment income. 9% reported money mismanagement. 4% attributed the financial distress to marriage breakdown. The "other" 13% in Chart 6 represents the following primary reported causes of bankruptcy: fraud less than 1%; the cost of moving 0.5%; gambling 2.44%; inadequate pension 2%; failure to pay taxes 3.6%, financial support of a child 1.6% and miscellaneous other 1%.

7% reported involvement in a failed business as the primary cause. This number could be low, given how the OSB defines consumer and business bankruptcy in its statistics. Consumer bankruptcy is defined as individuals with more than 50% of liabilities related to consumer spending. Business bankruptcy includes not only corporations, but individuals whose commercial debts account for more than 50% of the total value of debts¹⁵. Hence a sole proprietor or person with a business that fails, leading to both personal and commercial financial crisis, is counted as a business bankruptcy if the commercial debts are 50% or more of the debts. A number of these individuals with failed businesses are therefore likely to be included in those statistics. The OSB reports that of 9,856 business insolvencies in 2004, 7,075 were sole proprietorships¹⁶.

Chart 6 Causes of Bankruptcy – Reported Primary Cause

Table 4 analyses the causes of bankruptcy by age group for the 1,000 bankruptcy sample. There are a number of significant statistics. Overextension of credit is a huge contributing factor across all age groups, and particularly significant among older bankrupts. The overextension of credit rises steadily as the principal reason for bankruptcy. 26.50% of those aged 55-64 report it as the primary cause of bankruptcy, compared with almost 36% of those aged 70-74 and almost 40% of those over age 75.

Loss of employment income is very significant for the age 55-59 group, with almost 16% declaring loss of employment as the primary reason for their bankruptcy. This rate is better for those aged 60-64 and 65-69, with 11.73% and 10.70% declaring loss of employment income as the primary cause of bankruptcy, although it is still surprisingly significant given what was previously a standard age of retirement at age 65. While the percentage drops at age 70-74 to 8.39%, this is still relatively highly, particularly when there is an expectation at this age that job loss is not going to be a factor in one's financial health.

As noted above, medical reasons are quite significant as a primary cause of bankruptcy. Of note is that medical reasons are more significant for the younger age group and decline monotonically as one grows older. Medical reasons are the primary cause of bankruptcy for 15.59% of those aged 55-59; 15.96% for those aged 60-64, but dropping to only 10.78% for those over age 75. One explanation for this may be that senior citizens have greater access to drug coverage, health care and home care as they age, whereas some of the economic burden of those costs would fall more directly on the shoulders of those aged 55-64.

Another significant statistic in Table 4 is the high percentage of bankrupts aged 55-64 declaring involvement in a failed business as the primary cause of bankruptcy. As noted earlier, the OSB statistics report that there were 9,856 business insolvencies in Canada in 2004, including 2,781 corporations and 7,075 sole proprietorships¹⁷. There is likely a spillover effect in that a number of individuals end up declaring personal bankruptcy after their business or the company that employed them failed. Moreover, even if an individual files for business bankruptcy, a spouse or common law partner might also file a personal bankruptcy during the same period in light of the failed business and resultant financial distress for the family. It would be useful in the future if the OSB could cross-reference business failure with consumer bankruptcies by asking the consumers that file to indicate the name and date of the failed business, and whether they were an employee, principal owner, director or officer of the business.

Money mismanagement was reported as the primary cause in 6.24% of bankrupts aged 55-59; and 9% to 11.5% for all other age groups. It is difficult to draw any conclusions from this statistic, although it may be evidence that at least in a number of cases, counselling regarding financial management is of some assistance.

Finally Table 4 illustrates that marriage breakdown is a significant cause for bankruptcy in the younger age categories; for those aged 55-59, 5.79% reported marriage breakdown as the primary cause and for those aged 60-64, 5.19% reported marriage breakdown as the primary reason for their bankruptcy.

Table 4 Primary Causes of Bankruptcy Reported – By Age

	55-59	60-64	65-69	70-74	75+	All
Overextension of Credit	26.50%	25.77%	27.68%	35.66%	37.75%	29.21%
Money mismanagement	6.24%	9.23%	11.49%	11.19%	10.29%	9.39%
Loss of employment income	15.81%	11.73%	10.70%	8.39%	4.90%	11.24%
Medical reasons	15.59%	15.96%	16.45%	11.19%	10.78%	14.66%
Insufficient Income	10.24%	11.35%	13.05%	11.19%	15.20%	11.83%
Costs of moving	0.45%	0.96%	0.26%	0.35%	0.49%	0.54%
Involvement in failed business	7.35%	8.65%	6.53%	4.90%	3.43%	6.73%
Gambling	2.23%	2.50%	2.87%	2.10%	2.45%	2.44%
Pension not sufficient	1.11%	1.35%	1.31%	3.85%	1.96%	1.74%
Marriage breakdown	5.79%	5.19%	3.39%	1.75%	4.41%	4.34%
Failure to pay taxes	3.12%	3.27%	3.13%	5.24%	3.92%	3.58%
Financial support of child	1.56%	1.73%	1.31%	1.40%	2.45%	1.63%
Fraud	1.11%	0.38%	0.52%	1.40%	1.47%	0.87%
Other	2.90%	1.92%	1.31%	1.40%	0.49%	1.79%

C. Causes of Bankruptcy by Gender

The gender breakdown of the sample of 1,000 was roughly the same as the gender breakdown among the entire population of bankruptcy over age 55, with 53% of bankrupts being male, 46% female and almost 1% unknown. As noted earlier, the entire universe of data examined, 55% of the bankrupts were male.

Chart 7
Breakdown of Bankruptcy by Gender

Examining the causes by gender, the principal reason for bankruptcy was overextension of credit for both women and men, 34% and 31% respectively for the 1,000 cases studied. Insufficient income was cited as principal reason for women in 14% of cases, compared with 9% for men. Given that women continue on average to earn only 60% of the income of males in the Canadian workforce, this statistic is not particularly surprising.

Loss of employment income was cited as principal reason for women in 9% of cases, compared with 13% for men, significant in both cases given the age cohort. Yet while women are less likely to cite job loss as the primary cause of bankruptcy, they are considerably more vulnerable to bankruptcy even with employment income, since a lower on-average income increases the appeal of bankruptcy as a fresh start opportunity.

Men were far more likely to be involved in a failed business, which then led to their bankruptcy. Involvement in failed business cited as principal reason for women in 5% of cases, compared with 11% for men, more than double the rate for women.

There were comparable figures in money mismanagement (8% for both) and medical reasons (14% and 13%). Marriage breakdown was a cause more frequently for women than men.

Chart 8
Causes of Bankruptcy by Gender

D. Causes of Bankruptcy by Region

Table 5 sets out causes of bankruptcy by region, illustrating that there are significant regional differences.

Table 5 Causes of Bankruptcy, Provincial and Regional Breakdown, Causes by Province

	Maritime	Quebec	Ontario	Man	Sask	Alta	BC	All
Overextension of Credit	47%	29%	28%	40%	29%	31%	27%	32%
Money mismanagement	6%	9%	8%	5%	14%	9%	5%	8%
Loss of employment income	9%	8%	13%	5%	13%	12%	15%	11%
Medical reasons	6%	15%	14%	30%	7%	18%	16%	13%
Insufficient Income	16%	17%	11%	5%	4%	7%	6%	11%
Costs of moving	1%	0%	0%	0%	2%	1%	1%	1%
Involvement in failed business	7%	6%	10%	0%	12%	7%	12%	8%
Gambling	1%	3%	3%	0%	5%	2%	1%	2%
Pension not sufficient	1%	1%	3%	0%	1%	0%	2%	1%
Marriage breakdown	3%	5%	5%	5%	4%	5%	7%	5%
Failure to pay taxes	1%	3%	3%	5%	4%	3%	5%	3%
Financial support of child	0%	1%	1%	0%	4%	3%	2%	2%
Fraud	1%	1%	1%	0%	1%	1%	0%	1%
Other	1%	2%	0%	5%	0%	1%	1%	1%

Nationally, the top four causes of bankruptcy are: 32% report overextension of credit as the principal cause of bankruptcy; 13% report medical reasons; 11% report insufficient income as the principal reason; 11% report loss in income and 8% report involvement in a failed business.

The national figures are compared with the top four causes of bankruptcy by region, set out below. While overextension of credit tops the list in all regions, it is particularly significant in the Maritimes, cited as the source in 47% of cases. Medical reasons are the second top cause of bankruptcy in all regions except Québec and the Maritimes, where insufficient income is cited as second top cause.

Highlights by region of the top four reported causes of bankruptcy: 

British Columbia

• 27% over-extension of credit
• 16% medical reasons
• 15% loss of employment income
• 12% involvement in failed business

Prairies: 

• 31% over-extension of credit
• 15% medical reasons
• 12% loss of employment income
• 11% money mismanagement

Ontario

• 28% over-extension of credit
• 14% medical reasons
• 13% loss of employment income
• 11% insufficient income

Québec

• 29% over-extension of credit
• 17% insufficient income
• 15% medical reasons
• 9% money mismanagement

Maritimes: 

• 47% over-extension of credit
• 16% insufficient income
• 9% loss of employment income
• 7% involvement in failed business

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¹⁴ Melissa Jacoby and Elizabeth Warren, "Beyond Hospital Misbehavior; An Expanded Account of the Financial Consequences of Illness or Injury" (Working Paper, 2005), which found that over 80% of medical filers reported income loss as contributing very much or somewhat to their bankruptcies.

¹⁵ Office of the Superintendent of Bankruptcy, An Overview of Canadian Insolvency Statistics, (Ottawa: Industry Canada, 2006) at 1.

¹⁶ OSB, Insolvencies in Canada 2004, http://ic.gc.ca/epic/site/bsf-osb.nsf/en/br01476e.html.

¹⁷ OSB, Insolvencies in Canada 2004, http://ic.gc.ca/epic/site/bsf-osb.nsf/en/br01476e.html.