Women, Debt and Bankruptcy

It is a sad truth that the one area where we seem to have rising gender equality is in the share of bankruptcy filings in Canada.  Our own bankruptcy study shows that the split of bankruptcy filings by gender is now roughly 50/50 and this number is closely supported by recent statistics released by the Office of the Superintendent of Bankruptcy. 

In 2012, 42.0% of insolvencies were filed by women.  By 2018 this percentage has increased to 49%. In this article, we take an in-depth look at our study data to better understand the current issues around women, debt and bankruptcy. 

Bankruptcy can happen to anyone. Any gender, any age. Technically if you carry more debt than you can repay (you are insolvent) then a bankruptcy, or consumer proposal, is a viable fresh start. Yet women are filing insolvency in increasing numbers, with less debt than men. 

The average female debtor files insolvency on $43,414 in unsecured debt, 21% less debt than male debtors. They file insolvency with an unsecured debt-to-income ratio of 147%, much lower than the 177% it takes to cause male debtors to file. The question is why?

The answer lies in the risk profile of females carrying debt versus men. Women are more likely to be in a high-risk group than male debtors. They are more likely to be single parents, more likely to carry student debt, more likely to be divorced or separated or more likely to be widowed seniors than males filing insolvency. 

Income disparity and the gender gap

On top of these demographic risks, income disparity places an additional strain on their finances. Female debtors may be struggling with smaller debt loads; however, payments still take up a large share of her below average income, making it difficult to keep up with mortgage or rent payments, food and other living costs. This leads to a cycle of more borrowing – often with expensive debt options like payday loans, high-interest installment loans and credit card debt. Intermittent income leads to default and more accounts are put into collection.

In 2018, according to Statistics Canada, female employees aged 25 to 54 earned 13.3% less per hour, on average, than their male counterparts. In our own study, female debtors earned $2,467, 4.5% less than male debtors.

While the wage gap is decreasing in Canada, women face additional financial risks that, when combined with a lower income, contribute to the rise in consumer insolvencies among female debtors.

Single mothers face high debt risk

Bankruptcy involves families but the gender divide is startling.

In 2018, 42% of female debtors had at least one dependent compared to just 29% of male debtors.

Women are also are much more likely to be lone parents (either single or divorced). Today, women make up three-quarters of lone-parents filing insolvency.

On average, 26% of women filing insolvency in 2018 were lone-parents compared to just 8% of male debtors. Women raising at least one child in a single parent household earned an average of only $3,022 per month.  This is an income level 32% below two-parent households filing insolvency.

This income gap increases their reliance on debt to make ends meet.  It increases the likelihood they will take out a payday loan or use their credit cards to pay for food and rent. Eventually, it increases the likelihood that they will need to file a bankruptcy or proposal as a safety net once their debt levels rise far enough and their access to further credit disappears.

Student debt a growing problem for women

Student debt is increasingly a trigger for bankruptcy among women debtors 

More than one in five insolvent women (22.3%) carry student loans and it is a growing problem.  Student loan repayment places an additional financial pressure on women already living on a below average income or caring for a dependent, and this often leads to insolvency. Women are, in fact, almost twice as likely (1.7 times) to file insolvency due to student debt than male debtors.

The average women debtor with student debt files insolvency at the age of 35, just a year older than the average male student debtor. Yet she owes 8.2% more in student loan debt at the time of filing than her male counterpart. Women student debtors owe, on average, $15,171 in student loans at the time of filing, compared to $14,021 for men.

For women with student debt, student loans account for 34% of their total unsecured credit despite striving to make payments for many years. The problem isn’t entirely income disparity. On average, women with student debt make roughly the same as the average male student debtor – $2,419 in monthly take home pay versus $2,449 for men. However, as we saw earlier, women carrying student loans are more likely to be single parents – 4.2 times more likely – so are stretching that income to cover the costs to raise a child, which means student loan repayment becomes a distant priority.

Payday loans used to balance the budget

Women struggle to make debt payments despite carrying much lower total debt levels than men.  This is because more of their household income is used for everyday living expenses, leaving less available to pay down debt.

As minimum payments grow, they turn to more consumer debt to make ends meet.  Debt is used to pay the rent and keep groceries on the table.

For many women, payday loans become an option to delay bankruptcy.  Female debtors turned to payday loans more than male debtors when they have no further borrowing options, although the gap is narrowing as both genders increase their use of payday loans in general. 

By 2018, almost two in five women debtors (38%) carried at least one payday loan at the time of their insolvency although an overwhelming 78% owed multiple payday loan lenders when they filed.  On average they owed a total of $5,125 in payday loans to an average of 4.09 different payday loan companies.

Generation X – A time when debt comes home to roost

While the fastest growing group filing insolvency in Canada are millennials, women filing insolvency are much more likely to be Generation X and more Generation X filers are women.  This makes sense as it is those 38-43 (in 2018) who finally break under the pressures of the risk factors they face.

Senior women filing bankruptcy

However not to be undone, in 2018, 12% of all women filing bankruptcy were 60 years old and over.

Women face the same issues as men when it comes to carrying debt into retirement. Many are not prepared to face the financial challenges of retirement:

• Three in five (59%) are retired, struggling to repay debt on a fixed income.
• Four in five (79%) live alone, trying to make ends meet on a single income.
• One if four (25%) are widowed having trouble balancing to a reduced household income.
• Two in five (40%) are separated or divorced, living unexpectedly on a lower, single income.

What can we do?

If we extrapolate this data, roughly 60,000 women file insolvency each year in Canada.  It is hard to prevent a bankruptcy that is the outcome of a job loss, illness or divorce.  However, there are steps that can be put in place to reduce the level of financial insecurity for women.

We can create financial literacy programs geared towards the unique financial challenges faced by women.  A study by Statistics Canada in 2014 found that women had lower levels of financial knowledge than men.  About 15% of women correctly answered five key financial literacy questions related to interest, inflation and risk diversification, compared to 22% for men.

Programs like that offered by the Women’s Enterprise Skills Training of Windsor Inc. to promote lifelong financial preparedness training for women can help reduce this knowledge gap.

A basic income program may deal with income disparity at the lower income level, especially for lone-mothers, reducing the need to use debt to balance the family budget.

We can educate everyone about the dangers of payday loans, carrying debt into retirement, and provide education about how to break the payday loan cycle.

As insolvency providers, we empathize with the different financial challenges often faced by women living in marginal economic conditions. We encourage women to feel comfortable talking with a Licensed Insolvency Trustee about their options. More than 3 in 5 (63%) women file a consumer proposal over bankruptcy.

If your debts are overwhelming, do not be embarrassed to reach out for help.  As you can see from our study results, you are not alone in dealing with overwhelming debt.