The question has to be asked in light of the trend of rising debt loads among seniors: What happens if someone dies while owing money on a credit card or line of credit?
With debt levels at historic highs and climbing, the answer is almost disturbingly mild. If you go before your debts are paid, your estate is responsible. No money in the estate? That’s tough luck for your lenders.
It’s hard to shock people with statistics about debt any more. We’ve borrowed record amounts in relation to our incomes, and growth in debt – while slowing somewhat – is still well ahead of the pay increases we’re getting at work. But the trend of seniors leading the country in debt growth bears watching.
The credit monitoring company Equifax Canada reports that seniors are the least indebted segment of the population, even while they’ve consistently shown the highest rate of debt growth. The Vanier Institute of the Family has said that over the previous 20 years, the number of Canadians over 65 who have declared bankruptcy rose by 1,700 per cent while the insolvency rate increase for the population as a whole rose by only 139 per cent.
Seniors have fewer levers to work in dealing with their debt. No one ever says to them, you’ve had a great year, here’s a big raise in your pension payments. As people age, it’s less realistic for them to work to generate extra income. And if they invest more aggressively, they run the risk of losing big chunks of their savings.
In the meantime, seniors are facing financial challenges that previous generations did not. Here are a few suggested by Andy Fisher, a bankruptcy trustee at Farber Financial Group:
Extra costs: Cellphones, computers and Internet access are comparatively new costs for seniors and essential for keeping in contact with family and friends.
Investment losses: Mr. Fisher believes some seniors still haven’t recouped losses sustained from the 2008-09 stock market plunge.
Low interest rates: At a time when they have less ability to take on investment risk, seniors face historically low returns from safe vehicles, such as guaranteed investment certificates and bonds.
Sandwich issues: Longer lifespans mean someone moving into retirement could be supporting both aged parents and adult children.
Mr. Fisher argues that people with aged parents should keep an eye on their finances to ensure any debts are manageable. Stepping in to help can be a big stress reliever for the parents, he says.
And what might happen if seniors die after years of making minimum credit card or line of credit payments (thereby satisfying their bank but making little or no progress paying what they owe)? “The children are not exposed at all,” Mr. Fisher said. “They are not directly responsible for any of those debts.”
The estate of a deceased person is used to pay his or her debts, Mr. Fisher said. What’s left over goes to the beneficiaries. If that amount is insufficient to pay off the debts, then it’s possible to put the estate into bankruptcy and parcel out what assets there are.
What if someone dies with no assets to speak of? This is possible for a senior living off pension income and government benefits that cease after death. In such cases, Mr. Fisher said the lender is out of luck. “If I was the executor, I would write to all the creditors to advise that the individual is deceased and that there are no assets available in the estate.”
The issue of rising debt levels in younger demographics is often framed as a matter of living beyond one’s means or, to be blunt, self-indulgence. There’s probably a little of this going on with people who are retiring on incomes that come up short in providing the lifestyles they enjoyed while working.
But the seniors Mr. Fisher has encountered are building their debts the saddest way possible, which is by paying for everyday things on their credit cards. “It’s the standard stuff – you don’t really see one-time big purchases. And a lot of times, it just accumulates over time.”
Don’t expect seniors to talk about their debt problems or ask for help, he warned. In the cases where seniors die with debts, their kids are usually oblivious. “No one knows the extent of the problem until after they start dealing with everything and the bills start coming in.”
Hear more from bankruptcy trustee Andy Fisher, in conversation with Rob Carrick, in these videos:
Why an increasing number of seniors are declaring bankruptcy
Why more seniors are digging themselves into debt
How to tell whether your parents are drowning in debt
Follow Rob Carrick on Twitter: @rcarrick