05/09/2013 05:44 EDT | Updated 07/08/2013 05:12 EDT

Five Canadian Dreams Destroyed by Debt


Every two years my bankruptcy firm, Hoyes, Michalos & Associates, analyzes all of the debtors we have helped in order to put a face on the average person who files bankruptcy or a consumer proposal.

In what we call our Joe Debtor study we identified five dreams destroyed by debt.

1. Finding a Good Job

Gone are the days when a Gr.10 education guaranteed you a lifetime job at the factory. Recent Statistics Canada figures show that almost half of all employed youths are working part-time. Without a good paying full time job, younger debtors are unable to repay their average $33,000 in unsecured debts, including almost $12,000 in student loans, that they have accumulated. Many are forced to live with, or move back in with their parents to make ends meet. Most people dream of moving out, not staying with parents forever.

2. Starting a family

For those who managed their debt through their youth, many start a family and buy a home. For some, the slow economic recovery has taken a toll, causing them to rely on credit to survive. One in three own a home, but with an average mortgage of $215,000, combined with over $67,000 in other debts, a big part of their paycheque goes to debt payments.

3. Marriage

Even with a stable income, the stress of all that debt can lead to marital problems. Almost one-third of all insolvent debtors between the ages of 30 and 49 are divorced or separated. After divorce, the cost of maintaining two households adds to an already overwhelming debt burden.

4. Saving for Retirement

We all dream of our earnings peaking in our 50s as we approach retirement, but our study found that the risk of bankruptcy was the greatest for "Pre-Retirement" debtors. Unsecured debts peaked for debtors aged 50 to 59 at more than $84,000, the highest of any age group.

How did the dream of increasing wealth as we get older get destroyed?

In our study 30% of the Pre-Retirement debtors are still supporting a dependent, often a child in school, and many are assisting aging parents. At the same time, their income is dropping.

I have met with many 50+ Canadians who were downsized and can't find another job earning what they were making, and they are forced to take part time or lower paying jobs. The older you get the more likely you are to encounter medical issues, which can also reduce your income and increase reliance on credit cards and lines of credit to survive.

5. The Golden Years

We all dream of a comfortable retirement, but our study also revealed that while total insolvencies have declined in Canada, insolvency filings among seniors have increased. With debts that have accumulated over a lifetime, little in the way of retirement savings, and a reduction in income, more seniors are filing for insolvency than ever before.

So how can you prevent debt from destroying your dreams?

Watch for the pitfalls that can happen at any age, and avoid debt that you can't repay. It's better to cut your expenses now, so you are not destroyed by debt later.

If you find yourself with more debt than you can handle, take a look at your options to reduce your debt. Debt problems won't just go away on their own. The sooner you start making a plan, the sooner you can be debt free, and preserve your version of the Canadian dream.

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