Women 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.  In 2012, 42.0% of insolvencies were filed by women.  By 2017 this percentage has increased to 48%. In this article, we take an in-depth look at our study data to better understand the current issues around women and bankruptcy. Where possible, we have updated this data for 2017.

Income Disparity Contributing to Women Filing Bankruptcy

Women face increasing financial strain when they are the primary income earner in their household, and this financial risk all too often leads to bankruptcy among women.

While the average income for all people filing insolvency in Ontario has declined, insolvent women consistently have a household income substantially below that of men filing bankruptcy.  In 2017, insolvent women earned $219 per household less than men.  This is a massive difference when you are living paycheque to paycheque and relying on debt to make ends meet.

This income discrepancy leads to economic vulnerability and financial insecurity for women, particularly when they are the head of the household and dealing with debt.

From our previous full study, we know that housing costs consume a greater share of income for female debtors.  Although women spend 6% less on housing than men, female debtors are spending 42.2% of their household income on housing costs. This is much more than the recommended maximum of 35%, and higher than insolvent men at 39.8%.

Women facing severe debt problems spend 16% less on living costs than men, however this is not necessarily by design. They have less left over for anything beyond the essentials,  particularly when they factor in minimum debt repayments. Before filing bankruptcy, women are spending 10.1% of their income on debt repayment, marginally less than 10.5% for men.  It is important to know however that, in most cases, this does not cover even the minimum payments on all their debts.  They pay just enough to keep what credit they do have available.

Marital Status Changing Among Working Class

Men and women go bankrupt for different reasons.  Again, our previous full study shows that men are more likely than women to say that financial mismanagement, job or income loss and business failure are a primary cause of their insolvency.  While finances and income issues are still a dominant reason for women, they are more likely than men to list marital problems and health issues as a driver.

However, the impact of a marital breakdown among women and bankruptcy is changing. Over five years, the percentage of women mentioning marital issues as a primary reason for their financial problems has fallen from 21% in 2012 to 15% in 2016.

In 2012, 34% of women filing bankruptcy were divorced or separated.  By 2017 this percentage has dropped to 27%.

In Canada, it is possible to file a bankruptcy jointly with another person.  This is an option when two people, usually spouses or ex-spouses, have common joint debts. Here too we see a significant shift among women filing bankruptcy.  In 2012 the percentage of joint bankruptcies among women was 9.8%.  This has now dropped to just 4.7% in 2017.

The reason?  Single people are turning to insolvency in record numbers.  Over a six-year period, the percentage of women who were single at the time of filing rose from 30% to 39%.

This partially reflects the changing demographics of the Canadian family.  According to Statistics Canada, one-person households hit an all time high in 2016.  One-person households now make up 28% of all households in Canada.  In terms of women filing insolvency,  2017 data shows that 48% live in a single household and are struggling to get buy on an income significantly below the Canadian average and below that of single household male debtors.

In addition, the marriage gap between higher income (and more financially stable) families and lower income (and financially vulnerable families) is widening.  Our most recent bankruptcy study showed that it is lower-middle income earners who are declaring bankruptcy today. Combine these two factors and you have an increased number of women as the head of household living under financial stress.

Women Head of Households Facing Increased Bankruptcy Risk

The increase in the rate of women filing bankruptcy in Canada can be also be attributed to the economic vulnerability of women who are heads of household.

We can segment the most at-risk women into three broad categories:

  1. Lone-mothers
  2. Those carrying student debt and / or payday loans
  3. Seniors 60 and older

Lone-Mothers Facing Unbalanced Financial Burden

Bankruptcy involves families but the gender divide is startling.

39% of female debtors had at least one dependent in 2017 compared to just 29% of male debtors.  However, when women are the head of household (either single or divorced) they are overwhelmingly more likely than men to have a dependent when they file insolvency.

On average, 23% of women filing insolvency in 2017 are lone-parents compared to just 7% of male debtors. Women raising at least one child in a single parent household earned an average of only $3,094 per month.  This is an income level 9% below that of lone-fathers and 25% below two-parent households filing insolvency.

This income gap increases their reliance on debt to make ends meet.  It increases the likelihood that they will need to file bankruptcy as a safety net once their debt levels rise.

Student Debt & Payday Loans a Growing Problem for Women

In addition to income differences between the genders, the amount and type of debt they carry differ.

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.  As a result, women are more likely than men to carry outstanding credit card balances and turn to payday loans.

For many women, payday loans become an option to delay bankruptcy.  Although payday loans are on the rise among both men and women, female debtors consistently turned to payday loans more than male debtors when they have no further borrowing options.  By 2017, more than 3 in 10 women (31%) had at least one payday loan when they filed bankruptcy.

Like payday loans, student debt is increasingly a trigger for bankruptcy among women debtors.

Today, one in five insolvent women 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, and this often leads to bankruptcy. They are, in fact, twice as likely to file insolvency due to student debt than male debtors. For those with student debt, student loans now account for almost one-third (32%) of their total unsecured credit.

More Senior Women Filing Bankruptcy

Another alarming trend is the increase in share of bankruptcy filings by seniors in recent years.  By 2017, 15% of all women filing bankruptcy were 60 years old and over.  This rate was slightly lower for men, where only 13% of men filing bankruptcy were seniors.

The demographics of women filing bankruptcy in their senior years seem to illustrate that women are not as prepared to face the financial challenges of retirement as men:

  • Six in ten (58%) are retired, struggling to repay debt on a fixed income.
  • Seven in ten (74%) live alone, making ends meet on a single income.
  • Two in ten (21%) are widowed, having trouble balancing to a reduced household 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, 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. While women are somewhat less likely than men to file a consumer proposal, thereby avoiding bankruptcy, just over one-half (59%) do so.

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.