19 – Bankruptcy Demographics: Who Files for Bankruptcy?

Wayne Kay  0:03  

Welcome to the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay. 

In today’s show we’re going to talk about who’s a debtor and what a debtor looks like. The new debtors profile just came out. We’re going to discuss that with my guest, Jillian Taylor-Mancusi from LCTaylor, Licensed Insolvency Trustee in Winnipeg. Hi there, Jillian.

Jillian Taylor-Mancusi 0:29  

Hi, Wayne, how are you? 

Wayne Kay 0:30

Great. How are you doing? 

Jillian Taylor-Mancusi 0:31

Excellent.

Wayne Kay  0:32  

I love this topic. And there’s actually graphics regarding who it is that’s declaring Bankruptcy. And it’s a really pretty wide swath. It’s not that it’s a specific person.

Jillian Taylor-Mancusi  0:44  

You never know who has financial difficulty, and you’d be surprised.

Wayne Kay  0:49  

What I was shocked about was the amount of difference – and it wasn’t a lot between money coming in and money going out.

Jillian Taylor-Mancusi 0:56  

Yes, we’re going to learn about that. And alot more.

Wayne Kay  0:58  

Okay, so why don’t we start with – when we talk about what a debtor looks like, who are we talking about?

Jillian Taylor-Mancusi  1:06  

Well, there’s actually a lot of information that came out from the Government of Canada. They did a whole report on the Canadian consumer debtor profile. Most recent stats are from 2019, but they just came out recently. And it’s very surprising because people that you wouldn’t expect to be in debt are in debt. 

If you look at the average age of somebody who’s filing either a Bankruptcy or a Consumer Proposal, the average age is 47. Actually, if you take the age bracket, 35 to 49, that makes up 37% of those people who are filing.

Wayne Kay  1:40  

And why does that surprise you for an age group?

Jillian Taylor-Mancusi  1:43  

Because if you’re under 35, you think that you don’t have a lot of experience. They’re easy to hand out credit cards, when you’re walking through university campuses, and so on. So you think that age group would have a lot more, a lot more debt, and be filing because generally at that age, you don’t have a lot of other assets – things to look out for losing in something like a Bankruptcy. But that age group only makes up about 24%. 

Whereas you look at older folks, the over 65 group who are living on a fixed income, maybe they’re on pension, CPP OAS. And they’re not used to that change in the standard of living from going from working to a fixed income. But that portion only makes up about 12% of those people who are filing.

Wayne Kay  2:32  

Okay, and do they break it down, male – female?

Jillian Taylor-Mancusi  2:36  

Yes, actually, they do. And it’s pretty close in insolvency filings by gender, males 53% of females or 47%. So it’s pretty close.

Wayne Kay  2:45  

Wow. That’s actually kind of surprising. For some reason. I don’t know why – I just thought maybe men would be filing more.

Jillian Taylor-Mancusi  2:54  

Okay. might be slightly stereotypical. But I kind of thought that too – because I know a lot of the women I know are really good at budgeting and keeping track, right?

Wayne Kay  3:02  

Yes, exactly. And is it stereotypical? That’s what I thought as a guy, I thought for sure. And you thought the same thing. So I’m glad we have equality when it comes to declaring Bankruptcies etc.

Unknown Speaker  3:18  

Yes, we’re very equal when it comes to money management.

Wayne Kay  3:21  

What’s the average amount that people are filing for do you think?

Jillian Taylor-Mancusi  3:26  

Actually, this is pretty interesting, too. When you look at the numbers in 2019, median total liabilities were $51,904. The reason it’s interesting is I also have the numbers for 2016. And in 2016, the median debt amount was $80,600. So the amount of money that people are actually going Bankrupt, or filing Consumer Proposals on has actually gone down substantially.

Wayne Kay  3:49  

Wow, that’s a major drop from 80 to 50.

Unknown Speaker  3:54  

Right, exactly. And that’s only in three years.

Wayne Kay  3:57  

And talking about that big difference – how much do you need to owe to file? Is there an actual number or it can be anything,

Jillian Taylor-Mancusi  4:05  

The actual number needed to file is only $1,000 and be insolvent, which means that you can’t pay your debts as they become due. But really, that could be anybody walking down the street, because most people probably owe $1,000. But the difference is, a Bankruptcy or Proposals are going to cost you more than $1,000. Because you’re going to make monthly payments to the Trustee or you’re going to lose your income tax, or maybe you have an asset or two. 

But what the real difference is, is how much debt somebody can actually deal with. So if somebody owes $1,000 And they can’t pay those debts, well, then Bankruptcy is definitely a solution for them. But sometimes people can owe $10,000 or $100,000, or even a million dollars before they think that they have financial difficulty. It’s how much they can actually carry and how much their cash flow will allow them to pay monthly to make those payments and sometimes, people who owe $10,000 are struggling to pay those bills, but it’s not. Some people don’t struggle until maybe they owe a million dollars. 

Wayne Kay  5:04  

Wow,I was going to mention that, I guess the sign is when the debt keeps growing month after month as opposed to going down,

Jillian Taylor-Mancusi  5:13  

And how much you can actually service per month. And that’s another actually scary bit of information. A lot of people will decide what’s the monthly payment that they have to make on those debts. Can they afford the monthly payments – not can they afford the whole debt.

Wayne Kay  5:27  

Well, we see that a lot, everything is advertised – every single thing these days that you want to buy – you can make a monthly payment on it.

Jillian Taylor-Mancusi  5:37  

Right? And can you afford that monthly payment? Well, sure, maybe you can afford that monthly payment, you won’t go buy a $4 cup of coffee every day – so you can afford that monthly payment on that new toy. 

But you can also take that monthly payment strategy and flip that around so that it becomes a positive. So if you’re saving money or setting goals, you can change that into a monthly payment as well. You can take something that’s negative about how much money you owe, and flip that into a positive – how much money you can put aside every month to reach your goals, and break that down into a monthly payment. And that’s the way – that is why they do it. Because if you break something down into a monthly payment, it’s small and it’s manageable.

Wayne Kay  6:18  

I’ve actually heard a car ad where they break it down to daily payments, and then they’re like, Oh, look at this payment is only $8 a day. Well, yeah, but that’s times 30. Exactly.

Jillian Taylor-Mancusi  6:31  

When you break it down to a small manageable amount. Well, then it sounds affordable, right?

Wayne Kay  6:36  

I don’t know about this strategy. I wonder why they do it even for like $200 products, or now you can make three or three monthly payments. Oh, yes. infomercials.

Jillian Taylor-Mancusi  6:46  

It’s deceiving. That’s what it is. It’s really deceiving. For people who don’t understand the value of the dollar and how interest works and how compound interest works. It’s deceiving to break it down into a daily payment.

Wayne Kay  6:58  

I don’t know if you find this or not – or if you’ve talked to people who are in this situation, but when you don’t have money and you’re in debt, it sucks. And you will buy something to make yourself feel better. But then it just continues being put on your shoulders with this debt. And you feel like well, I’m never gonna get out of debt anyway, I might as well buy a new air fryer or something different. And it’s not a lot of money. But over time, that stuff all adds up.

Jillian Taylor-Mancusi  7:26  

Right. And really, that’s an addiction, because you’re doing something to get a positive benefit out of it for yourself. So it’s unfortunate that shopping addictions are truly addictions like gambling or alcohol. And that’s something that you need to really address if you’re going to go into a Bankruptcy or a Proposal situation. You want to make sure you get that under control so that it’s not something that continues to happen.

Wayne Kay  7:51  

When you talk about the credit counseling when people get in trouble, and there’s many different reasons – does it actually break it down? What are some of the reasons why people end up declaring Bankruptcies?

Jillian Taylor-Mancusi  8:03  

Yes, actually, 37% of people that have financial difficulties say that it’s because of a loss of income. Another one, that 23% is due to medical reasons. 15% is relationship breakup. 7% is due to business failure, and 6% is due to tax liabilities. 

I find that very interesting, because this is stats from across the country. If I look at our own practice, and the people that I meet coming through our doors, I would say that definitely a good portion of it is due to marriage breakup. In my opinion, that would be one of the highest reasons. And it really makes sense if you think about it. Because when you’re together, you have two incomes coming in, you’re splitting one household. But when you separate, then you become two separate one household incomes with two households you’re now supporting. 

So it makes a lot of sense – that marriage breakup would be one of the number one reasons that people have financial difficulty. And I would say the second reason that I see is due to addictions, either gambling or alcohol or shopping addictions. That’s something that I would think would be the number two reason for the people that I meet.

Wayne Kay  9:18  

So maybe a little bit different from what the stats are saying, but I agree with you 100%. I was talking with a bank manager once about Bankruptcies. He was saying the same thing. It’s families breaking up – a breakup of a marriage, probably number one.  

And then I was quite surprised. He said sports – getting kids in expensive sports  and in top tears, he said a lot of people get into financial trouble. Everybody’s going in different directions, but they’re doing it for their kids because the kid is pretty good or they want the kid to have the opportunity to maybe make the NHL and they’re only nine years old.

Jillian Taylor-Mancusi  9:56  

I don’t see that a lot with the people that I meet but I could definitely There’s enough people in that boat that I can see that happening. Because you always want your children to have something better than you had. So if they have this talent, yes people are willing to give it all so that they can reach their goals and make the NHL or the NBA or whichever sports filiation. Then maybe that will be their ticket to an easy retirement, because when they’re making millions of dollars, it will make up for the money that they spent to get them to that level.

Wayne Kay  10:31  

Right. Yes, and that’s a good point. Yesterday, some information actually came out from the government regarding money. And they were saying that in the last year, they didn’t see Bankruptcies as high as they have before. Did you notice that?

Jillian Taylor-Mancusi  10:46  

Yes, I did notice that Bankruptcies have definitely decreased during COVID. I think a lot of that has to do with the amount of government’s spending to help people with either CRB or CERB. There was a lot of money coming through to people that didn’t normally have it.

For example, if you were working a minimum wage job, the CERB was higher than what you were earning, earning minimum wage. So a lot of people went on CERB and were actually making more money than when they were fully employed. 

I think the other reason is that a lot of companies stopped collection practices. So for example, CRA wasn’t collecting. A lot of collection agents – people are working from home, they weren’t following up on the debts. And there was a lot of debt forgiveness for a number of months by different companies, big banks, and so on. 

So for those reasons, people weren’t filing because they weren’t in trouble. Sometimes you need somebody to collect and tell you that you’re in debt, and you have to pay it back before they start looking for options.

Wayne Kay  11:53  

So if we look into the crystal ball – if we have seen them go down, I’m assuming this is almost going to be like an effect where we’re going to see an increase in the next few years.

Jillian Taylor-Mancusi  12:04  

I would definitely say so. And I don’t even know if I would wait a few years, I would say probably in the next 8 to 10 months, I would see an increase in the number of filings. Yes, because CRB is no longer in effect, people are starting to get back into the workforce. They’re realizing that they’re not making as much money, and they’re also going to have to pay tax on that CERB and CRB money that they received because they received it non taxable. 

So you’re going to have an income tax debt, because you collected that money. Now, you take CRB and EI plus a wage that you may have earned. Now, there’s even more money that’s going to CRA. So I think that’s definitely going to push people to look at other options, as well as things like people are going back to work. 

The collection agents, the big banks, they’re not working from home anymore. So they are going to start to follow up with people and start collecting. The courts are starting to open up, whereas if you’re not paying your debts, eventually the collection agents are going to take you to court and try to get judgments and garnishments against you. 

So we’re going to start to see all of those things coming back. And I think that’s going to cause a lot more people to file for Bankruptcy. And I think it’s going to look like a spike. But it really isn’t, because these are people who’ve been insolvent this whole time.

Wayne Kay  13:20  

Yes, exactly. So because, let’s say we didn’t have COVID, the chances are, they probably would have had to declare Bankruptcy in the last year. But because of all the reasons you just mentioned – I could see why it would definitely go down. 

And then I was kind of being generous about the next two years. But I think you’re right, within the next year, we’re going to see a lot of people that are going to have major financial problems, and they’re going to want to reach out. And let’s talk about that, just very quickly, when’s the point to reach out to a Licensed Insolvency Trustee?

Jillian Taylor-Mancusi  13:55  

When you notice that you’re unable to pay your debts as they become due. If you find that you have a lot of debt, and you don’t know how you’re going to pay it. It’s not a matter of waiting till something gets into collections, it’s when you first realize that you’re not going to be able to make that payment. 

The sooner you talk to a Trustee, the more options you’re likely to have. There might be things like RSPs that you have or equity in a house that might stop you from having to file or a Bankruptcy or Consumer Proposal. There may be other restructuring options, or budgeting options that you might have available if you talk to a Trustee sooner.

Wayne Kay  14:34  

So you do go through all that information when you do that initial consultation. You talk about what different options are, as well.

Jillian Taylor-Mancusi  14:42  

Right. That’s one of the things about meeting with a Licensed Insolvency Trustee. Our job is to provide you with all of the options so whether it’s a Bankruptcy or a Consumer Proposal, budgeting, financial counseling, or maybe you’re in a position where you might not have to do anything – just the way your circumstances are. So we’ll definitely go through all of those options with you.

Wayne Kay  15:04  

One thing in this infographic that came out that I was kind of surprised with –  was that the amount of money coming in and the amount of money going out was actually pretty close. What was that – regarding people who are actually declaring Bankruptcy, or what that graphic had to do with.

Jillian Taylor-Mancusi  15:21  

So the information in the graphic is actually people who file Bankruptcy and Consumer Proposals. What it shows is that the median household income is $2,717 for people who file. That being said, the household expenses were $2,780 a month. So they’re already at a negative when they’re coming into file. 

Hopefully, what the end game is when you file a Bankruptcy or Consumer Proposal is that you’re getting rid of that debt, and you’re finding a solution that’s going to solve your problems. So that instead of being negative $63 a month, hopefully with that $63, you can start to put into something like savings or a rainy day fund. Because really, you should try to save between 5 and 10% of your income each month.

Wayne Kay  16:09  

Yes. If only we did right from right from when we were 20, when we were told. That would be great. Right?

Jillian Taylor-Mancusi  16:17  

Right, exactly. The things that you learned at that age.

Wayne Kay  16:21  

Yes, and then we go – it’s fine. Now we’re all trying to play catch up. Some people obviously did a great job of it. I think that number, you know, the $2,700 versus $2,760, or $2,780, or whatever it was. I was kind of surprised to see that because in my mind, we started talking at the beginning of this podcast. I was kind of thinking it was people with high end fancy cars and big houses that got into some financial trouble. And that’s not it at all. It’s just regular Canadians.

Unknown Speaker  16:52  

It is regular Canadians, but you have to remember that that’s a median. So that’s the average Canadian –  that is the average person filing. But you are going to find those people that have the fancy houses and the fancy cars – I bet you a lot of them do have fancy debt loads to go along with it.

Wayne Kay  17:07  

Okay, good to know. Any final thoughts you want to share regarding this topic today?

Jillian Taylor-Mancusi  17:12  

I think the only thing that I would want to say is you never know who has financial difficulty. And you know, it could be the person with the fancy car and the fancy house. But it could be your average neighbor next door. It doesn’t have to be somebody who’s destitute who’s filing.

Wayne Kay  17:28  

Terrific. Jillian, thanks very much for the information today. Jillian Taylor-Mancusi from LCTaylor Licensed Insolvency Trustee in Winnipeg. If you want to learn more or schedule that free consultation with LCTaylor, you can head over to LCTaylor.com. 

And that’s it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcasts from and of course, for more information, you can always check out debtmatters.ca Thanks so much for listening.