Bankruptcy warning signs
By Amy Brown-Bowers • Bankrate.com

Most Canadians are three paycheques away from serious financial trouble. Our access to credit is at an all-time high and our savings are at an all-time low, leaving us with inadequate financial safety nets. So long as we keep our jobs, so long as our families have two breadwinners, so long as we don't get sick, so long as the car doesn't break down this winter, we will be fine.

Last year, 84,638 Canadians filed for personal bankruptcy according to the Office of the Superintendent of Bankruptcy. They ranged in age from 18 to well into their 80s and 90s and owed an average of $69,619 each. Their plans fell through. They overspent, got sick, divorced or lost their jobs.

Sometimes, bankruptcy is unavoidable. But in many cases, knowing the common factors that contribute to becoming overburdened by debt can help you avoid it. So, here are the top reasons why people in various age groups end up declaring bankruptcy, based on the percentage of those in each age group that declared in 2005 according to the Office of the Superintendent of Bankruptcy. Knowing what to look out for could help you remain solvent in the future.

17 per cent of bankruptcy filers are in their 20s
Tim Cone (not his real name -- all names of bankruptcy filers have been changed to respect their privacy), a 27-year-old from Toronto, filed bankruptcy last year when he found himself drowning in debt. What started in college as a credit card with a $1,000 limit soon ballooned into two cards, a bank consolidation loan and a line of credit (thanks in large part to the strategic wooing of creditors and Cone's own poor money management) for a total debt load of $20,000.

"It's surprisingly easy to get an upgrade in credit," Cone says. "(You) dig a hole and you can't get out. The easiest solution is to get more credit because you need to do things like pay rent."

About 17 per cent of the people who filed for bankruptcy in 2005 were between the ages of 18 and 29. Like Cone, many completed post-secondary education, moved out on their own and began buying a lot of things on borrowed money.

"They've spent several years just buying a lot of stuff and paying very little for it and they realize, 'I just can't keep this up anymore, and I want to pay off my debt, but I just can't. Heck, I'm paying out more every month than I'm making,'" says Greg Gogan, executive director of In Charge Debt Solution Canada, a nonprofit Canada-wide credit counselling agency.

The biggest consideration in filing bankruptcy at this stage of life is the inability to access credit easily for the next seven years, a time when most people buy their first homes.

But that can lead to a lifetime of healthier money management because you learn to live without credit instead of depending on it, says Ted Michalos, senior partner and trustee at Hoyes Michalos & Associates Inc., a company that provides personal bankruptcy and proposal services to people across Ontario.

55 per cent of filers are in their 30s and 40s
Ben Holt, a 40-year-old IT professional from Toronto, came close to filing for bankruptcy this year. Soon after splitting from his fiancée and moving from Edmonton to Toronto, the company he worked for folded, rendering his shares worthless. "All of my investment money was in the company.  I lost everything I had," including his home, he says.

Like Holt, most people who file at this stage of life do so because of a relationship breakdown or a loss of employment coupled with poor money management. Many couples at this stage are saddled with large payments for items bought based on a projection of steady duel income for years to come.

"They're together, they've got all these debts and they're all hunky dory because they can make the minimum monthly payments or they can pay it off," says Stanley Kershman, a certified specialist in bankruptcy and insolvency law and author in Ottawa. "But when they split up, they don't have that same accumulated income together to be able to satisfy those debts, and that's when they run into trouble."

And for people reeling from the break up of their family, dealing with collection agencies can be overwhelming. "The aggressive and abusive collection agencies have been the worst part of this ordeal," says Holt. "This entire experience is humbling, shaming, depressing and demeaning -- it really beats you up inside. Collection agencies ... really try to demean, shame you and remove any dignity you might be clinging to."

"They make your life very challenging," Kershman says. "You can even lose your job by virtue of your productivity being disrupted by people calling."

That being said, filing gets "rid of this monkey off your back," he says, and allows you to focus on the solution rather than fret about the problem.

28 per cent of filers are in their 50s, 60s or older
Marital breakdowns remain one of the common reasons people run into financial trouble in their 50s and 60s. But it's also a time when many people find themselves financially responsible for both aging parents and university-aged kids.

Kershman says he's also noticing a trouble trend in people filing for bankruptcy in their 70s. "One big word -- casino." he says. High levels of gambling, coupled with living on a fixed income and the rising cost of living and medical expenses, often leaves seniors strapped for cash.

"They're running out of money. They've had to have additional health care (and) the money that they're earning in terms of interest on their investments just isn't enough," says Kershman.

Getting help
Credit counselling organizations can help determine the best course of action at each stage of life, which may or may not be filing for bankruptcy. Trained to help you face the emotional and fiscal challenges of financial difficulty, counsellors can will help you determine your goals and priorities, be they saving your home or preserving your retirement savings.

Gogan, whose organization receives about 500 new calls each week, says people are often surprised by the many options available in times of financial difficulty. "It comes as a big surprise to a lot of people that there are solutions other than going bankrupt."

For more information check out Bankrate.ca's stories "Declaring personal bankruptcy" and "Working with a credit counselor."

Reasons for declaring bankruptcy by generation

Age Percentage of Canadians who filed for bankruptcy in 2005 Main reasons for filing Major considerations 18 to late 20s 17.2% • No savings • Job loss • Too many purchases made on credit too quickly • Difficulty getting credit during time when need it most • Chance to change poor money habits for better early on 30s 27.4% • No savings • Job loss • Marital or relationship breakdown • Poor money management • Difficulty getting credit during the time they need it most • Fear of losing home and having to uproot children • Chance to focus on solution rather than fret about problem 40s 27.7% • Job loss or relocation • Marital or relationship breakdown • Poor money management • Fear of losing home and having to uproot children • Chance to focus on solution rather than fret about problem 50s 16.5% • Marital or relationship breakdown • Job loss • Self-employment venture that fails • Cost of university for kids • Cost of caring for aging parents • Fear of losing RRSPs • Chance to focus on solution rather than fret about problem 60s and up 11.2% • Marital breakdown • Poor health • Obsessive behaviours, such as gambling • Cost of living goes up while living on fixed income • Fear of losing RRSPs • No longer making debt payments, frees up fixed income for living expenses