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Month: March 2017

Power of Attorney: Can I Deal With My Parents’ Debts?

Reading time: 4 minutes

Elderly parents together showing need for power of attorney

If your parents are having trouble managing their finances, it may be necessary for someone to be appointed their power of attorney. In many cases, the power of attorney is granted to one’s child if of legal age.

What is a Power of Attorney?

A power of attorney is a legal document that you sign to give someone authorization to manage your money and assets. In order to give someone power of attorney you can either visit a lawyer or download the power of attorney kit directly from the Ministry of the Attorney General.

When someone grants you power of attorney they’re authorizing you to act as their “Agent”. This means that they’re giving you the power to make financial decisions on their behalf. This includes their day-to-day banking, debt payments, and filing a consumer proposal or bankruptcy on their behalf.

How can a Power of Attorney help with debt?

Being someone’s Agent means that you are confident in taking responsibility and know their financials are in good hands. It’s beneficial for your parents because they may no longer be able to make the most sound, and responsible decisions for their assets.

The first step is to gather documents. Make a list of their bank accounts, investments, insurance, other assets and creditors. Review all income streams such as company pension, CPP, OAS, GIS and RRIF withdrawals.

If there isn’t enough money coming in to pay for their personal expenses and debt, a Licensed Insolvency Trustee can help you review options that are best for your parent.

We’ve put together some examples of clients who have been authorized to act as an Agent by their parents. Because of confidentiality reasons all names have been changed.

Mary and Janet

Mary was recently appointed as her mom Janet’s power of attorney. Janet retired many years ago from an administrative position at their local school board. Years of overspending (mainly helping out family) and medical expenses resulted in Janet asking Mary for help dealing with her debt. When Mary and Janet added up Janet’s credit card debt, they found it totaled $23,000. Janet’s pension provided her with $2,500 a month, which she needed to cover her every day expenses. After trying several resolution plans on their own, Mary decided they needed professional help to get Janet out of debt.

When Mary first came to Hoyes Michalos, she realized the best option was to file a consumer proposal. Then Mary used her power of attorney, and filed a consumer proposal acting as her mom’s Agent. The creditors agreed to the proposal’s terms and Mary is now helping her mom manage her every day expenses.

John and Bill

John came to Hoyes Michalos to help eliminate his dad Bill’s debt. Bill was a retired teacher with a company pension. Without the stability of having somewhere to go each day, Bill turned to substance abuse. Because of his substance abuse, Bill was now dealing with medical issues and no longer able to manage his own money. John knew he needed to take control of his dad’s account, and Bill agreed to have John act as his power of attorney. So John decided the best course of action for his dad was to use his power of attorney and file bankruptcy on his behalf.

The bankruptcy process only changes slightly when using power of attorney.

The Agent needs to provide a copy of the signed power of attorney documents to the Licensed Insolvency Trustee. It is then forwarded to the Office of the Superintendent of Bankruptcy to keep on-file. All other duties in a bankruptcy remain the same. The only difference in the process is that the power of attorney completes them in place of the debtor.

Seniors Turning To Payday Loans A Scary Trend

Posted in Viewpoints

By Ted Michalos, CA, LIT

Reading time: 3 minutes

Senior couple signing financial paperwork

In a study released by Hoyes Michalos, we know that payday loans are a big problem. This is especially true for people who are already carrying high levels of credit card and other revolving debt. What’s particularly worrying to me is the astounding numbers around seniors (ages 60+) who use payday loans. Like many of our clients who turn to payday loans, seniors are using their payday loan to pay off pre-existing debt. However the average payday loan debt owed by a senior is higher than any other age category, which should raise an alarm.

Payday Loan Use Increasing

Let’s talk payday loans for a bit. As anyone who has followed my blog posts, or listened to my rant on Debt Free in 30, knows I have a particular hatred for these types of credit products. Our recent Joe Debtor study proves that I have good reason.

Source: Hoyes, Michalos

If you are using payday loans there is an increased risk that you will need to file for insolvency.

Our study showed that payday loan use among our clients is on the rise.

They owed on average $5,174 in total payday loan debt, or 195% of their monthly take-home pay. So how did they end up borrowing more than their pay in payday loans? On average, a payday loan debtor actually had 3.9 payday loans. The average loan size being taken out was $1,311 and this too is increasing.

Source: Hoyes, Michalos

How is someone able to borrow from that many payday loan companies? Simple – no credit checks. If payday lenders don’t register the loan, you can easily walk into another lender to borrow a second, third or yes, 23^rd loan.

Payday Lenders Targeting Seniors

What bothers me even more is that more seniors are borrowing against their pension income. Payday loan companies specifically advertise that they will loan against CPP, ODSP, retirement benefits, pensions – you name it, they list it.

Today 21% of all seniors filing insolvency have a payday loan.

Payday loans by age group	18-29	30-39	40-49	50-59	60+
% with payday loan	48%	43%	37%	28%	21%
Payday loan debt	$4,396	$5,189	$5,723	$5,255	$5,224
Payday loan as a % of income	183%	191%	209%	192%	199%
Number of loans	4.0	4.1	4.1	3.4	3.1
Average payday loan size	$1,224	$1,219	$1,382	$1,424	$1,639
% $2,500+	13%	13%	15%	17%	20%

Payday loans are a scourge to the average debtor, and seniors are no exception. Seniors have an honest desire to pay off their debt and will do anything to try to make that happen. Most end up using payday loans to meet an immediate, necessary expense, or pay a bill, because debt payments have used up most of their income. Once the payday loan comes due, the crisis is not over. Debt payments remain and in fact, are now even higher than before. This creates a cycle of borrowing that leads to the average senior taking out almost over three payday loans before finally admitting they need a better solution, which often means restructuring their finances by filing insolvency.

For more information on our study findings contact:

Douglas Hoyes, CPA, Licensed Insolvency Trustee
Ted Michalos, CPA, Licensed Insolvency Trustee

1-866-747-0660

Millennials Heavy Payday Loan Users and It’s Costing Them Bigtime

Posted in Viewpoints

By J. Douglas Hoyes, CA, LIT

Reading time: 3 minutes

Young man looking at empty wallet surrounded by hands holding out cash

Payday loans are a loan of last resort for a lot of people. A previous Hoyes Michalos – Harris Poll showed that 10% of Ontarian’s admitted to using a payday or short-term loan (we’ll refer to it as payday loan for simplicity) in the past twelve months. However, that number increases to 15% when you look at just millennials between the ages of 18 and 34.

In this same study, 20% of Ontarians between the ages of 18 and 34 said they would definitely/likely apply for a payday loan in the next twelve months. In contrast, 14% of Ontarians 35-54 would definitely/likely apply for a payday loan in the coming year and only 4% of those 55 and older stated they would do so.

It’s not surprising that young people are more likely to admit they use, or will use, payday loans. Just starting out, or possibly still in school, millennials tend to earn less and have lower credit limits. That means that payday loans are often their only source of quick money when other sources of credit run out. In fact, 14% of payday loan users (those who used a payday loan in the last 12 months) aged 18-34 said they sought a payday loan because they were denied credit at a bank and 41% agreed that payday loans were their only source for borrowing money.

The Insolvent Millennial Debtor

In our original Harris Poll, 39% of millennial payday loan users (those 18-34 in 2016) said they sought a payday loan because of the amount of debt they carried. We could interpret this to mean that 4 in 10 young payday loan users use payday loans because they already have too much debt.

Sadly, the result of borrowing debt on top of debt is usually insolvency.

Our Joe Debtor payday loan study found that 46% of insolvent millennials (those 22-17 in 2018) had at least one payday loan outstanding at the time of their insolvency. They in fact owed, on average, $4,792 on 4.1 payday loans. Insolvent millennial debtors were the most likely of any age group to have a payday loan. (NOTE: These numbers have been updated for our 2018 Joe Debtor study.)

Not Worried Yet? Check The Trend

How about if we told you that the percentage of young debtors with a payday loan has been increasing dramatically? The percentage of millennial debtors with a payday loan was only 16% in 2011; this increased to 32% in 2015 and now 46% in 2018. Millennials are also making up a higher percentage on insolvent debtors overall – 37% in 2018 up from 35% in 2017. While student debt is also an issue for millennials, their increased use of payday loans is making their financial situation much worse.

One last concerning statistic from our original study on payday loan use in Ontario: 60% of payday loan users between the ages of 18 and 34 would definitely/probably recommend a payday loan to family, friends or co-workers.

That is a staggering statistic, especially when they’re effectively recommending that someone take on a loan with an annual interest rate of 390%. So there you have it. Social proof that may mean we need to better educate young people about the longer-term risks of using payday loans.