Seniors have the highest level of outstanding debt among people filing for insolvency in Ontario – including the largest balance of unpaid payday loans.
A study of 6,000 personal insolvencies in Ontario in 2013 and 2014 – including people who filed for bankruptcy or filed consumer proposals – shows a growing number of people over age 60 are among those hitting the debt wall.
Seniors accounted for 10 per cent of all insolvencies – up from 8 per cent four years ago – and had the highest level of unsecured debt at the time of their insolvency, averaging $69,031 each. That is 22 per cent higher than the average unsecured debt of $56,545 for all people filing for insolvency, according to the review by bankruptcy trustee firm Hoyes Michalos & Associates Inc.
Bankruptcy trustee Doug Hoyes said the most alarming trend is the rise in the number of people over age 60 taking out high-cost payday loans, which cost fees of $21 per $100 borrowed in Ontario. The loans are intended to provide quick funds between paycheques, and are supposed to be repaid within two weeks.
"Those at-risk groups don't necessarily qualify for the traditional low-cost borrowing options, so they turn to things like payday loans or quick-cash instalment loans and other high-interest forms of debt, and it ends up being crippling for them," Mr. Hoyes said.
Mr. Hoyes said most seniors are highly committed to repaying their debts, and turn to payday loans to cover payments on credit cards and other loans. He said payday lenders will lend to people whose only income comes from government Old Age Security and Canada Pension Plan payments, knowing seniors are guaranteed to get those funds.
The review found just 9 per cent of insolvent seniors had outstanding payday loans, compared to 30 per cent of debtors between 18 and 29, but seniors had the highest outstanding payday loan balance, averaging $3,693, compared to $2,393 for people aged 18 to 29. Seniors who used payday loans had an average of 3.7 different payday loans outstanding at the time of their insolvency.
Mr. Hoyes said his clients over age 60 typically accrued their debts over years of borrowing as they put children through school and lend them money to get established in adulthood or care for elderly parents. Some end up insolvent because they borrow to lend money to their adult children, who then cannot repay the debt.
"It's your kids, so why wouldn't you, and they've promised to pay you back. But then they lose their jobs, they get sick, they get divorced, and they aren't able to [pay], but you're stuck with the payments on the debt," Mr. Hoyes said.
He said his experience has convinced him seniors should only lend money to adult children if they have the cash on hand, and should not borrow to get the funds.
In addition to having the highest payday loans outstanding, the review found people over 60 also had the highest unpaid credit card balances at the time of their insolvency. Credit card debt for those over 60 averaged $33,355 per person, compared to $28,006 for debtors aged 50 to 59, and $21,491 for those 40 to 49.
Insolvent seniors also have the highest unpaid tax bills owed to the Canada Revenue Agency. Mr. Hoyes said many seniors are surprised to discover they owe money at tax time on their pensions and other income sources, because they were accustomed to having ample tax automatically taken off their paycheques while they were working.
Overall, the study found the average person filing for insolvency in Ontario had 2 per cent less debt in 2013 and 2014 than in the prior two-year period in 2011 and 2012.
Average total unsecured debt fell to $56,545 from $57,972, while average credit card balances fell by 12 per cent to $20,776 from $23,708 in the earlier period from 2011 and 2012. Other personal loan balances increased, however, along with unpaid taxes and student loan balances.
Mr. Hoyes said the decline in credit card balances suggests more people are using cheaper sources of borrowing, such as lines of credit.