Joe Debtor: The Face of Bankruptcy He may look a lot like you…

Prepared By:

J. Douglas Hoyes, BA, CA, CIRP, CBV, Trustee

Ted Michalos, BAS, CA, Trustee

Hoyes,Michalos&AssociatesInc.TrusteesinBankruptcy

PrincipalOffice:204–607KingStreetWestKitchener,OntarioN2G1C7Phone:(519)747‐0660

www.hoyes.com

OfficesThroughoutOntario

February,2011

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TableofContentsIntroduction................................................................................................................................................................3 

WhoIsJoeDebtor?...................................................................................................................................................3 

CausesofInsolvency...............................................................................................................................................5 

FinancialMismanagement...............................................................................................................................5 

SeparationandDivorce.....................................................................................................................................5 

JobLossorReducedIncome...........................................................................................................................6 

MedicalProblems................................................................................................................................................6 

BeyondtheAverages–The“Face”ofBankruptcy......................................................................................7 

PersonalInformation.........................................................................................................................................7 

FamilyandMaritalStatus.................................................................................................................................7 

HouseholdIncome...............................................................................................................................................8 

Debt...........................................................................................................................................................................9 

Mortgages...........................................................................................................................................................9 

CreditCards.......................................................................................................................................................9 

CanadaRevenueAgencyDebt................................................................................................................10 

FinanceCompanyandPayDayLoanDebt........................................................................................10 

StudentLoans................................................................................................................................................10 

DebtServicingCosts........................................................................................................................................10 

“JaneStudent”–TheAverageInsolventDebtorwithStudentLoanDebt......................................11 

PersonalProfileDetails:JaneStudentDebtor.....................................................................................11 

AComparisonofFemaleandMaleBankrupts..........................................................................................13 

MoreSeniors“GrampaDebtor”FilingBankruptcy.................................................................................15 

What’sChanged–2007to2010......................................................................................................................17 

JoeDebtorVersusTheAverageCanadian...................................................................................................19 

References................................................................................................................................................................21 

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IntroductionHoyes, Michalos & Associates Inc. has provided consumer proposal and personalbankruptcyservicestoindividualsinOntariosince1999.WeareoneofthelargestfirmsinCanadapracticingintheareaofpersonalinsolvency.Weworkexclusivelywithpeople,notcorporations, sowe have a particular interest in helping individuals solve their personalfinancialproblems.

Thisisnotanacademicexerciseforus.Ourtrusteesspendeachdaymeetingwithpeopleinfinancialdistress.Thesearerealpeoplewhohavelosttheirjobs,gonethroughamarriagebreakup,orsufferedanillness.Oftenafterthesepersonaltragediestheyarefacedwiththeprospectofdealingwithinsurmountabledebt.

Whilemanyofourdebtorsadmittheymayhavemismanagedtheirmoney,thevastmajorityofpeoplewemeetwitharenotbadpeople,andwebelieveitisimportanttoputa“face”ontheaverageinsolventperson–wecallhimJoeDebtor.Mostpeoplebelievethatbankruptsareunemployedand“downandout”. Thefact is theaverage insolventpersonisworkingand earns approximately the same amount as the average Canadian. The principledifferencebetweenourdebtorsandtheaverageCanadianistheirlevelofdebt.

WhoIsJoeDebtor?Whenyouhearanewsstoryabout therise in thenumberofconsumerbankruptciesyoucannothelpbutwonder“couldthisbeme?” Well, itcouldbe. ThetypicalpersonthatweseeisjustliketheaverageCanadian.Theyarehardworkingindividualstryingtoprovidefortheirfamiliesthat(forvariousreasons)endupinfinancialruin.

Asrequiredbylaw,wegatherasignificantamountof informationabouteachdebtorwhofileswith us. We know their income, family size, age, gender, assets, and debts. Hoyes,Michalos&Associatesexamined8,000insolvencyfilingsfromdebtorsweassistedoverthetwoyearperiodfrom2009to2010. OuranalysisrevealsthattheaveragebankruptlooksverymuchliketheaverageCanadian.

WediscoveredthatJoeDebtorisa41‐year‐oldmale.Heisorwasmarriedandislivingina2‐personhousehold.Hehasajobwithatake‐homepayofabout$2,240amonth,(slightlybelowtheCanadianaverageof$2,419)1.

Joe Debtor has total unsecured debt of more than $59,800, including $24,390 owing oncreditcards,$13,761onbankloansandlinesofcredit,and$5,412intaxesowing.

Our study shows that 39% of insolvent debtors stated that job loss or reduced incomescontributed to their financial problems, 14% stated that a relationship break‐up was aprimary cause, and 55% admitted that they were over‐extended and mismanaged theirfinances.DespitegoodhealthcareinCanada,12%listedhealthreasons(injury,disability,medicalconditions)asacauseoftheirinsolvency.

MostCanadiansinfinancialdifficultyaregood,hardworkingpeople,butduetodivorce,jobloss,healthcrisisandover‐useofcredit,areforcedintobankruptcy.Theydonotfollowthetypicalstereotypeoftheaveragebankrupt;infact,theylookliketheaverageCanadian.

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Thefollowingprofileisoftheaveragepersonthatfilesbankruptcy(oraproposal)totheircreditors):

JoeDebtorPersonalInformation:Gender MaleAverageage 41Maritalstatus MarriedAveragefamilysize 2(includingdebtor)Averagemonthlyincome $2,240netofdeductionsAveragemonthlyincomeforallCanadians $2,4191Totalunsecureddebt $59,814Likelihoodtheyownahome 26%(1in4debtors)Averagemortgagevalue $210,574DetailedInformationontheamountofaverageunsecureddebt:Bankloans $13,761Creditcards $24,390Taxes $5,412Financecompanyloans $4,997Studentloans $1,945Other $9,309

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CausesofInsolvencyEachyear,wellover100,000Canadiansfileaconsumerproposalorpersonalbankruptcy.Inourexperience,theirfinancialproblemsdevelopforanumberofreasons.

FinancialMismanagement

Obviously, the generic term “financialmismanagement” is a large contributing factor. Infact,whenaskedforthecauseoftheirfinancialdifficulties,55%ofourdebtorslisted“overextension of credit and financial mismanagement” as the leading cause of their financialproblems.

Financialmismanagementcanincludeoverspendingandexcessiveuseofcreditbutitoftenisassimpleasnotplanningforunexpectedexpensessuchasacarorhouserepair. Whenyoucombinethelackofsavingswithamajorunexpectedexpense,consumersoftenturntocreditasameansofmakingendsmeet.

Inpartdue to theguiltassociatedwith filingbankruptcy,mostof thepeopleweseeholdthemselves wholly responsible for their misfortune and they may not recognize theunderlyingproblemsthatpushedthemintoinsolvency.

In our experience, a debtor’s financial mismanagement was either caused by, ordramaticallyincreasedby,alifealteringevent.Themostcommonoftheseincludemaritalseparationordivorce,jobloss,andpersonalillness.

SeparationandDivorce

Thegeneralmythisthatfilingforbankruptcymaycausemorefamilystressandmayevenlead to divorce. In fact we have found the opposite to be true. More than one‐quarter(26%)ofourclientswereseparatedordivorcedatthetimeoftheirfilingand14%ofourclientscitedmaritalorrelationshipbreakdownasthecauseoftheirfinancialdifficulties.

Itiseasytoseehowtheendofarelationshipmightcausefinancialproblems.

Whileacoupleistogethertheymayhavetwoincomes,butonlyonesetoflivingexpenses(rent, utilities, groceries, etc). They make plans based on the assumption that therelationship will last forever; they incur debt for cars, mortgages on houses, and otherconsumeritems.

Once separated, eachpartnerwill have theirown rent, utilities andother expenses.Theywill also be limited to their own income. While they are adjusting to their new reality,recentlyseparatedpeopleoftenrelyoncredittopaytheirbills.

This leads tomoredebt than either party can service, and a proposal or a bankruptcy isoftenthefinalresult.

CausesofFinancialDifficulty2 RateOverextensionofcredit,financialmismanagement,unexpectedexpenses 55%Jobrelated(unemployment,layoff,reductioninpay) 39%Maritalorrelationshipbreakdown 14%Illness,injury,andhealthrelatedproblems 12%

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JobLossorReducedIncome

The recenteconomicdownturnhas translated into increased job insecurityanddecliningincomesformanyCanadiansandthisputsthematgreaterriskoffilingbankruptcy. Notethat 39% of our clients indicated that job related issues contributed to their financialdifficulties‐upfrom33%in2008.

Job‐relatedfactorscanincludeunemploymentandtemporaryorpermanentlayoffbutoftenincludes reduction in income due to a decrease in overtime or a cut‐back in total hoursworked. If you do not have, or have used up, your savings and your income is reduced,creditisoftenusedtomakeuptheshortfall.

MedicalProblems

DespiteuniversalhealthcareinCanada,12%ofourclientscitedillness,injury,andhealthrelatedproblemsasacauseoftheirfinancialdifficulties.

Generallythis isduetotimeoffworkrecoveringfromtheirhealthproblems.Duringtheirconvalescence they may use credit to survive and pay their day to day bills. Once theyreturntowork,theyareleftwithmoredebtthantheycanhandle.Othersmaynotbeabletoreturntofulltimeworkandfindthattheirdisabilityincomeisnotsufficienttopaytheirdebtsastheycomedue.

Insummary, formostpeople, financialproblemsaretheresultofsomemajor life‐alteringevent.Certainly thesepeoplemustassumeresponsibility for their insolvency,but inmostinstances,theirfinancialproblemsarereallyaresultofnotplanningfora“rainyday”andnotbecausetheysetouttodeliberatelyincurmoredebt.

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BeyondtheAverages–The“Face”ofBankruptcyHoyes, Michalos & Associates Inc. has provided personal bankruptcy and consumerproposalservicesto individuals inOntariosince1999. Weareoneof the largest firms inCanadapracticingexclusivelyintheareaofpersonalinsolvency.

Topreparethisstudy,weexamined8,000insolvencyfilingsfromdebtorsweassistedoverthe 24‐month period ending December 31, 2010 in order to put a “face” on the averageinsolventperson. Wethenanalyzedallof that informationanddevelopedaprofileof thetypical bankrupt individual (we call this person Joe Debtor). Our analysis also revealedmanyfactorsbeyondtheaveragebankrupt,providinginsightandknowledgeintowhofilesbankruptcy(oraproposal)totheircreditorsinCanadaandwhy.

PersonalInformation

Our typical insolvent debtor, “Joe Debtor”, is a 41 year old male. More males filed forinsolvency than females (58%of insolvent debtors are maleand 42% are female). Theaverage age of all insolventdebtorswas41.

While 60% of debtors arebetween theagesof30and59,we have dealt with debtors asyoungas18yearsoldandasoldas89.There is littledifference in

agebetweenmaleandfemalebankrupts.Theaveragemaledebtoris42yearsoldwhiletheaveragefemaledebtoris41.

FamilyandMaritalStatus

Insolvencies involve families ‐60% of insolvent debtors areeither married or livingcommon law (with or withoutchildren) or are single parentswithatleastonedependant.

Joe Debtor is more likely to bemarried at the time of his

insolvency. Note that45%of ourdebtors aremarriedor living common‐lawat the timetheyfile.

A high percentage of insolvent debtors are eitherdivorcedorseparatedatthetimeoffiling.Inourstudy26%of insolventdebtorsweredivorcedor separated.This is consistent with our finding that 14% of ourclients citedmarital or relationship breakdown as thecauseoftheirfinancialdifficulties.

The average household size for insolvent debtorswas2.28 persons. This may be a husband and wife, or

Age Distribution18– 29 16%30– 39 31%40– 49 29%50– 59 16%60– 69 6%Over70 2%

MaritalStatusInsolventDebtor

2006CensusCanada3

MarriedorCommon‐law 45% 52%Divorced 10% 7%Separated 16% 3%Widowed 2% 6%Single 27% 32%

HouseholdSize Distribution1 41%2 22%3 15%4 14%5 6%

6ormore 2%

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commonly, would be a single parent and a dependant child. In total, 45% of insolventdebtorshaveatleastonedependant.

Approximately14%ofinsolventdebtorsareloneparents,similartotheCanadianaverage.Ofloneparentinsolventdebtors,79%arefemaleand21%aremale.Additionally,64%ofloneparentswereseparatedordivorcedatthetimeoftheirfilingand28%weresingle.

HouseholdIncome

The common stereotype is that the averagebankrupt isapersonwho isunemployed. Ourstudy shows that in fact 80% of insolventdebtors were employed at the time of filing.Only 13% were unemployed compared to theOntarioaverageof9%unemploymentoverthepasttwoyears.

Afurther4%ofinsolventswereretiredand3%wereondisability,medicalormaternityleave.

Theaveragetake‐homepayforJoeDebtorwas$2,240 per month, slightly below the Canadian average of $2,4191. Average income forothers in the household was $710 permonth.

Of our clients, 39% indicated that jobrelated issues contributed to theirfinancial difficulties. This included notonly unemployment and temporary orpermanentlayoff,butreductioninincomefrom either a reduction in overtime or acutbackintotalhoursworked.

Income Debtor Others$NIL 4% 62%$1‐ $1,000 9% 9%$1,001‐ $2,000 32% 14%$2,001‐ $3,000 34% 10%$3,001‐ $4,000 14% 3%$4,000+ 7% 2%

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Debt

Joe has $59,800 in unsecured debt. The average adult Canadian(18+)hasconsumercredit(debtexcludingmortgages)of$16,3994.ThisisoneareawhereJoeDebtordiffersfromtheaverageCanadian– he is carrying a debt burden beyond what he can handle. Inaddition,hehasmorerevolvingcredit,andinparticularcreditcards,whichcarryaheavyinterestratecost.

Joe Debtor owes on average, $24,400 on credit cards, $13,800 inbankloans,$5,400intaxes,andabout$16,200onotherdebtssuchasfinancecompanyloans,paydayloans,studentloans,anddebtstofamilyandfriends.Joecarriesanaverageoffourcreditcardsinhiswalletincludingbankcards,non‐bankcardsandretailcreditcards.

The average unsecured debt carried by an insolvent debtor hasincreased 17% since our previous study conducted in 2008. Thelargestincreasehasbeenintheareaofcreditcarddebtwhichgrew33%.Therecentdownturnintheeconomy,combinedwithjoblossor income reduction, has forcedmore families to rely on credit topaytheireverydaybills.

MortgagesThere’s a 1 in 4 chance that Joe owns his own home and has amortgage. The average mortgage amount (for debtors withmortgages)was$210,574.

CreditCards94% of insolvent debtors owe money on credit cards, and theircreditcarddebtwas$25,815.

Theaveragedebtorcarries fourcreditcards inhiswallet includingthreeall‐purposecards(Visa,MastercardorAmericanExpress)andoneretailcard.

95%ofinsolventdebtorscarryacreditcard

84%carryamajor credit card fromaCanadianbank (VisaorMastercard)andtheaveragebalancepercardis$7,917.

73% carry a major credit card from a non‐Canadian bank(AmericanExpress,CapitalOne,MBNAetc.)andtheaveragebalancepercardis$5,732.

49%carryaretailcreditcardandtheaveragebalanceowingpercardis$3,090.

No.ofCreditCards Distribution1 14%2 18%3 17%4 16%

5ormore 36%

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CanadaRevenueAgencyDebtOfinsolventdebtors,34%owetaxes,eitherpropertytaxordebtsowingtoCanadaRevenueAgency. Theaveragedebttheyoweis$16,104withthemajoritybeingamountsowingtoCanadaRevenueAgency.

FinanceCompanyandPayDayLoanDebt48%of insolventdebtors owemoney to finance companies including car loans, furnitureloansandpaydayloans.Theaveragedebttheyoweis$10,436.

Ofinsolventdebtors,5%owemoneytopaydayloancompanies,andtheaveragedebttheyoweis$1,482.Theaveragepaydayloanis$712andaninsolventdebtorwithpaydayloanshasanaverageof2.1loans.Fordebtorsusingpaydayloans,theiraveragepaydayloandebtisequivalentto2.5weeks’take‐homeincome.

StudentLoansOf insolvent debtors, 14% had a student loan with an average student loan balance of$14,370.

DebtServicingCosts

In 2008, theminimummonthly payment needed by Joe Debtor to service his unsecureddebt (excludingmortgages or rent)was equal to hismonthly take home income. In ourrecent study, minimum debt payments now require 1.06 times the average insolventdebtor’sincome. Continuedrelianceonconsumercreditcombinedwithincomereductionasaresultof theeconomicdownturnhas increasedthe financialpressureontheaverageCanadianandthisistrueformanyofourdebtors.

Prior to filing, Joewill have soldwhateverheowns, borrowed fromwhoeverwould lendhim money and then started making and then immediately withdrawing his monthlypayments in order to “spread” his paycheque as far as possible. This strategy willeventuallyresultineitherlegalactionand/orbankruptcy.

Estimatedminimummonthlypaymentsrequiredtoservicetheirunsecureddebt:

Bankloans–mixedrateof10%,plus3%ofloanbalancerepaidmonthly $528

Creditcards–19%,plus2%ofbalancerepaidmonthly $874

Taxes–1%interestpermonth,12monthstopay $505

Financecompanyloans–mixedrateof31%,plus2%ofloanbalancerepaidmonthly $229

Studentloans–mixedrateof10%,plus2%ofloanbalancerepaidmonthly $55

Otherdebts–nosetterms(assume2%ofdebtrepaidmonthly,nointerest) $186

Totalunsecureddebt $2,377

Averagetake‐homepayJoeDebtor $2,240

Debtservicingcostsasa%ofincome 106%

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“JaneStudent”–TheAverage InsolventDebtorwithStudentLoanDebt14%ofourclientshavestudentloandebtatthetimeoftheirinsolvencyandtheiraveragestudent loandebt is$14,370. Basedon theHoyesMichalos&Associates Inc.proprietarydatabaseoftheindividualsandfamilieswehaveassistedduringtheperiodfromJanuary1,2009toDecember31,2010,the“typical”debtorwithstudentloandebtisfemale,35yearsold,singleandhasaverageunsecureddebtof$50,334ofwhich$14,370isstudentloans.

Statistics Canada found that the average student debt for the 2005 graduating classwas$18,800 and 57% of those students borrowed money to finance their post‐secondaryeducation.Combinethiswiththerecentrecessionandlowerincomeearningpotential,andstudentdebthasasignificantimpactonanindividual’sfinancialconditionaftergraduating.

JaneStudentDebtorPersonalInformation:Gender FemaleAverageage 35Maritalstatus SingleAveragefamilysize 2(includingdebtor)Averagemonthlyincome $2,124netofdeductionsAveragemonthlyincomeforallCanadians $2,4191Totalunsecureddebt $50,334Likelihoodtheyownahome 14%(1in6debtors)Averagemortgagevalue $208,766DetailedInformationontheamountofaverageunsecureddebt:BankLoans $9,715CreditCards $15,087Taxes $2,186FinanceCompanyLoans $3,743StudentLoans $14,370Other $5,233

PersonalProfileDetails:JaneStudentDebtor

58%ofinsolventdebtorswithstudentloansarefemale,42%aremale.

Theaverageageofinsolventdebtorswithstudentloanswas35,slightlyyoungerthanthetypical insolvent debtor at 41. Three quarters (75%) of insolvent debtors with studentloanswerebelowtheageof39.

Jane Student Debtor is likely to be single. Of insolvent debtorswith student loans, 41%were single and38%weremarriedor living common‐lawat the timeof their filing. The

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lowerlikelihoodofJaneStudentDebtortobemarried,divorcedorseparatedisdueinlargeparttotheyoungeragedistributionofthisgroupofinsolventdebtors.

Theaveragehouseholdsizeforinsolventdebtorswithstudentloanswas2.34persons.Thismaybeahusbandandwife,orcommonly,asingleparentandadependantchild.

Ofinsolventdebtorswithstudentloans,84%areemployed.Theaveragetake‐homepayforJane Student was $2,124, slightly below that of Joe Debtor, definitely below that of theaverageCanadian.

MaritalStatusJaneStudentDebtor

MarriedorCommon‐law 38%Divorced 7%Separated 13%Widowed 1%Single 41%

Age Distribution18–29 27%30–39 48%40–49 18%50–59 6%60–69 1%Over70 0%

HouseholdSize Distribution1 41%2 18%3 20%4 13%5 6%

6ormore 2%

Income Debtor Others$NIL 10% 9%$1‐ $1,000 35% 12%$1,001‐ $2,000 34% 8%$2,001‐ $3,000 12% 3%$3,001‐ $4,000 5% 2%$4,000+ 4% 66%

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AComparisonofFemaleandMaleBankruptsOf insolventdebtors,42%are female. Whileboth femaleandmaledebtorsaresimilar inage, female debtors are more likely to be divorced or separated. In addition, a higherpercentageof femaledebtors listedmaritalor relationshipbreakdownasacauseof theirfinancial difficulties (16% versus 12% formale bankrupts). Female bankrupts aremorelikely to have a dependant and a staggering 27% of female bankrupts are lone parentscomparedtoonly5%ofmaleinsolventdebtors.

Femaledebtorsowe,onaverage,$49,250inunsecureddebtcomparedto$67,580formaledebtors. As a percentage of their overall debt, female bankrupts carry a slightly higherportion of credit card debt than male debtors. For debtors with student loans, femaledebtorsalsohaveamuchhigheramountofstudentloandebt($15,201forfemaledebtorswithstudentloanscomparedto$13,242formaledebtorswithstudentloans).

While female debtors’ take‐home pay, at $1,837 per month, is less than their malecounterpart,whencomparedtodebtlevels,afemaleinsolventisusingalowerpercentageoftheirmonthlytakehomepaytoservicetheirdebt.Howeveroneshouldrememberthateven female bankrupts on average are using 88% of their take home pay to serviceunsecureddebt–and this isbeforemortgageor rentpayments, foodandutilitybillsandotherday‐to‐daylivingexpenses.

Male bankrupts aremore likely to own their home (31%) than female insolvent debtors(25%)howevertheaveragemortgagebalanceowingwassimilarforthetwo.

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ComparisonofFemaleandMaleDebtorPersonalInformation: Female MaleAverageage 41 42Maritalstatus

MarriedorCommon‐law 34% 52%DivorcedorSeparated 32% 22%Widowed 3% 1%Single 30% 25%

Averagefamilysize 2.2 2.32ormoreinhousehold 61% 57%Likelihoodofhavingdependant 50% 42%%loneparent 27% 5%Averagemonthlyincome $2,092 $2,348Totalunsecureddebt $49,250 $67,580Monthlypaymentstoservicedebt $1,837 $2,774Debtservicingcostsasa%ofincome

0.88% 1.18%

Likelihoodtheyownahome 25% 31%Averagemortgagevalue $209,814 $211,008DetailedInformationontheamountofaverageunsecureddebt:BankLoans $11,826 $15,184CreditCards $21,377 $26,606Taxes $2,209 $7,767FinanceCompanyLoans $4,317 $5,497StudentLoans $2,797 $1,318Other $6,725 $11,209

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MoreSeniors“GrampaDebtor”FilingBankruptcyAtHoyes,Michalos&Associates,wehavenoticedan increase in thenumberof insolventdebtorsovertheageof55.In2010,16.0%ofdebtorswhofiledabankruptcyorproposalwithuswere‘GrandpaDebtor’,upfrom12.5%in2008.

An increasingnumberofCanadiansareentering retirementwithdebt. Anotheralarmingtrend is the increasing propensity of retired Canadians to assume more debt duringretirement.Whilesomeofthisdebtishousing‐related,moreolderCanadiansarecarryingasignificant amount of credit card debt. Our study showed that GrandpaDebtor owed onaverage,$73,878inunsecureddebt,24%higherthanJoeDebtor.Evenmoresignificantly,GrandpaDebtor’screditcarddebtaveraged$37,128,52%morethanJoeDebtor.

Sowhatistheprofileoftheinsolvent‘GrandpaDebtor’?Whataresomefactorsthatplacethematanincreasedriskofinsolvency?

Almost half of senior debtors are living on their own (47%). Grandpa Debtor ismorelikelytobewidowed(9%)ordivorcedorseparated(30%)atthetimeoftheirinsolvency. Divorcedorwidowed seniors find it increasinglydifficult tomaintaintheirdebtpaymentsonasingleincome.

Ofseniordebtors,37%stillhaveadependantathome. Thismaybeadependantparent, an adult child returning home or still in school, a younger child orgrandchild. The increased financial costs of supporting dependant children orparentscaneasilyleadtotheuseofcredittomakeendsmeetinwhatisseenasatemporarysituation.

The average take home pay for Grandpa Debtor was $2,133, well below theCanadianaverageof$2,4191. Ourstudyshowed that34%of seniordebtorswereretiredorondisabilityincomeandafurther10%wereunemployedatthetimeoffiling.

Ofseniordebtors,20%citedillness,injury,andhealthrelatedproblemsasacauseof their financial difficulties. For many, that means an earlier than plannedretirementorreducedincome.Forothers,financialexpensesincurredincaringforthemselvesorfamilymembersincreasedtheirdebtload.

Only33%ofseniordebtorshadRRSPsavingsandtheaveragetotalRRSPvalueforthose with RRSPs was $29,856. Approaching retirement without a safety net ofsavings, combined with higher debt levels, significantly increases the risk ofbankruptcy.

While for many seniors, carrying debt into retirement may be manageable, particularlygiven recent low interest rates, it is the unexpected event that can significantly increasetheirriskoffinancialdisaster.Combineahighlevelofdebtwithareductioninincomedueto illness or retirement, or an unexpected expense, and the need to file for bankruptcyquickly becomes a reality. Our recommendation is to plan ahead for retirement. Thatmeansnotonlyplanningforsavingsbutensuringthatyouhaveaproperdebtrepaymentplanduringyourworkingyears.

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ComparisonofSeniorDebtortoAverageJoeDebtorPersonalInformation: SeniorDebtor(55+) JoeDebtorMale 61% 58%Female 39% 42%Averageage 62 41Maritalstatus

MarriedorCommon‐law 50% 45%DivorcedorSeparated 30% 26%Widowed 9% 2%Single 12% 27%

Averagefamilysize 1.7 2.3Singlepersonhousehold 47% 41%Likelihoodofhavingdependant 13% 45%Averagemonthlyincome $2,133 $2,240Totalunsecureddebt $73,878 $59,814Monthlypaymentstoservicedebt $2,092 $2,377Debtservicingcostsasa%ofincome 148% 106%Likelihoodtheyownahome 26% 26%Averagemortgagevalue $202,720 $210,574DetailedInformationontheamountofaverageunsecureddebt:BankLoans $14,801 $13,761CreditCards $37,128 $24,390Taxes $8,562 $5,412FinanceCompanyLoans $4,544 $4,997StudentLoans $507 $1.945Other $8,336 $9,309

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What’sChanged–2007to2010TherehasbeenasignificantamountofchangesinceourpreviousstudyofJoeDebtor.TheCanadian economy is just now recovering from a severe recession. In addition, newbankruptcyrulesbecomeeffectiveinCanadaonSeptember18,2009.

Hoyes, Michalos & Associates previously conducted a study of Joe Debtor using datacollectedfromdebtorsweassistedovera17‐monthperiodendingDecember31,2007.Aspartofourcurrentstudywealsolookedathowthe“Face”oftheaverageinsolventdebtormayhavechangedoverthepreviousthreeyears.

Insolvency is affecting more middle income debtors with families. The averagehouseholdsizeofinsolventdebtorsincreasedslightlyfrom2.2to2.3.Evenmoretelling,thenumberofhouseholdswithtwoormoreresidentsincreasedto59%in2010from56%in2007.Morehomeownersarebecominginsolvent‐while1in5debtorsownedahomein2007,thisnumberincreasedto1in4by2010.

Significantchangesinhousingpricessince2007haveimpactedonmanyfamilies’abilitytomeet theirdebtpayments. Theaveragemortgagesize foran insolventdebtorwhoowned their own home increased 72% from $122,108 in 2007 to $210,574 in 2010.Again,1in4insolventdebtorswerehomeownersin2010,upfrom1in5in2007.

Whileaveragedebtorincomegrew8%overthethreeyearperiod,totalunsecureddebtroseby17%.Creditcarddebtincreasedthemost,up33%overthreeyears.

Changes in bankruptcy legislation effective on July 8, 2008 reduced the period underwhich student loanswouldbedischarged from tenyears to sevenyears.Theaveragestudentloan(forinsolventdebtorswithstudentloans)increased77%from$8,104perstudent debtor in 2007 to $14,370 in 2010. The growth in student loan debt is areflection of several factors including higher tuition costs and increased student loandebtaswellasrecentchangestothebankruptcylegislation.

AdditionalchangestothebankruptcyruleseffectiveonSeptember18,2009makefilingbankruptcyalongerandmoreexpensiveprocessformanyCanadians.Asaresult,moreCanadians are now deciding to avoid personal bankruptcy by filing a consumerproposal.Consumerproposalsincreasedto42%oftotalfilingsinour2009‐2010studycomparedto35%in2007. Infact, in2010alone,48%ofourclientsfiledaconsumerproposalasopposedtoabankruptcy.

In summary, the current economic climate, combined with easy access to credit hasincreased the risk of insolvency for the average Canadian. Unfortunately the disposableincome of Canadians has not kept pace with the growth in the level of household debt.Simply put, Canadians’ spending continues to increase faster than their incomes. It nowtakes more of each Canadian’s take‐home pay to service the debt that they haveaccumulated. If anything interrupts the average person’s income, even for as little as amonthortwo,theyfindthemselvesunabletomeettheirobligations.

Askyourselfthisquestion:

If I lostmy job, howmany pay chequeswould I need tomiss before I experienced seriousfinancialtrouble?

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Based on our experience, many Canadians are only one or two pay cheques away fromseriousfinancialproblems.

Comparisonof2007studywith2010studyPersonalInformation: 2009‐2010 2006‐2007Male 58% 56%Female 42% 44%Averageage 41 42Maritalstatus

MarriedorCommon‐law 45% 40%DivorcedorSeparated 26% 29%Widowed 2% 2%Single 27% 29%

Averagefamilysize 2.3 2.22ormoreinhousehold 59% 56%Averagemonthlyincome $2,240 $2,071Totalunsecureddebt $59,814 $51,106Monthlypaymentstoservicedebt $2,377 $2,070Debtservicingcostsasa%ofincome

106% 100%

Likelihoodtheyownahome 26%(1in4debtors) 21%(1in5debtors)Averagemortgagevalue $210,574 $122,108PercentageProposals 42% 35%DetailedInformationontheamountofaverageunsecureddebt:BankLoans $13,761 $13,365CreditCards $24,390 $18,335Taxes $5,412 $5,276FinanceCompanyLoans $4,997 $4,401StudentLoans $1.945 $1,532Other $9,309 $8,197

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JoeDebtorVersusTheAverageCanadian

Our study of Joe Debtor revealed that the typical insolvent debtor we see is just like the average Canadian. They are hard working individuals trying to provide for their families who (for various reasons) accumulate more debt than they can manage. Then, a sudden shock, such as a job loss, illness, divorce or higher interest rates, leaves them unable to make their payments and triggers the need to file a proposal or bankruptcy to deal with their financial situation.

Who is at risk? More than believe so. Canadian households continue to accumulate debt, despite or maybe because of, the recent downturn in the economy. Many Canadians are in a state of denial about the magnitude of their overall debt load and the risk they face. In a recent study completed for the Canadian Association of Accredited Mortgage Professionals respondents strongly agreed (an average rating of 7.87 out of 10) with the statement “Canadians have too much debt”. Yet when asked if they felt they were personally well-positioned to weather a potential downturn in home prices, the average response was only 6.52 out of 10. In other words — my neighbour has too much debt, but I am fine. But for many, this state of denial is just not true. It only takes one small negative event to start a downward spiral into financial disaster when your debt load is already at its maximum.

Ask yourself these questions to determine if you are one of the average Canadians about to become Joe Debtor —

Doyouavoidopeningthemailifitisabill? Doyouonlymakeminimumpaymentsonyourdebtsorhaveyoumissedapayment

becauseofashorttermcashcrisis? Willyouneedtoborrowmoneyintheeventofanemergencylikeacarrepair? Areyouclosetoyourcreditcardlimits?Areyouusingonecardtopayanother? Areyouunabletoqualifyforfurtherlendingatlowinterestrates?

If you answered yes to any of these questions you may be at risk of becoming Joe Debtor.

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ComparisonofJoeDebtortoAverageCanadianPersonalInformation: JoeDebtor AverageCanadianMale5 58% 59%Female5 42% 51%Averageage6 41 41Maritalstatus3

MarriedorCommon‐law 45% 52%DivorcedorSeparated 26% 10%Widowed 2% 6%Single 27% 32%

Averagefamilysize3 2.3 2.6Averagemonthlyincome1 $2,240 $2,419Totalunsecureddebt4 $59,814 $16,399

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References1. Statistics Canada: PersonalDisposable Income (v498186) per capita (Population

V1). Information can be found from the Canadian Economic Observer, January2011, Table 5.7: Selected per person income and produce serieshttp://www.statcan.gc.ca/pub/11‐010‐x/2011001/t015‐eng.htm.CalculationusedisaverageofQ12009toQ32010,convertedtomonthlyamount.

2. TabulatedfromthereasonsgivenbythedebtorsontheStatementofAffairs,whenasked to give reasons for their financial difficulties. The numbers do not add to100%sincesomedebtorsgivemorethanonecausefortheirinsolvency.

3. 2006CensusofCanada:FamilyandMaritalStatusforOntario. SummarydatacanbefoundthroughtheOntarioMinistryofFinance2006CensusHighlightsFactSheet5http://www.fin.gov.on.ca/en/economy/demographics/census/cenhi06‐5.html

4. StatisticsCanada: ConsumerCredit,SeasonallyAdjusted(v36417)calculatedonaper adult 18+ basis based on quarterly Population (Table 051‐0005) adjusted forpopulation ratio of Annual Population for all Canadians to Annual PopulationCanadians18+(CANSIM:Table051‐0001).

5. StatisticsCanada:Percentageofpopulationovertheageof20,July2010

6. StatisticsCanada:Medianage2010