Freedom 55 is no more. "Debt 55" is more like it. So are "Debt 65" and even "Debt 75." And, in a distressing trend, 9% of people aged 60 or over filed for personal bankruptcy in the first seven months of 2010, compared to 7% between 2006 and 2009.

A study by the Canadian Association of Retired Persons names "over-extension of credit" as the main cause of bankruptcies among the over-55 cohort, followed by "medical reasons" and then "job loss."

"Unfortunately today an increasing number of seniors are retiring with debt, so when their income drops at retirement it often becomes impossible to both service debt and pay normal day-to-day living expenses," says bankruptcy trustee Douglas Hoyes. Some of his senior bankruptcy clients retired in good financial shape, but depleted their retirement nest egg and even took on new debt to help grown children deal with their own money problems.

"Some [indebted seniors] adapt by making only the minimum monthly payments on credit cards," explains Financial Post reporter Jonathan Chevreau in an article on bankruptcy among seniors. That leads to a downward debt spiral, a journey that often ends with a trip to offices like Hoyes'.

Divorce expensive at any age

The recession, consumerism and needy children aren't the only factors driving down the finances of Canadian seniors. Canada's divorce rate (the number of marriages projected to end in divorce before the 30^th wedding anniversary) has fluctuated between 35% and 42% since 1986. And those who divorced at, say, age 35 or 40 in the late 1980s are now entering their senior years.

But even making it to the senior stage doesn't guarantee that a couple will stay married. Family lawyer Andrew Feldstein cites HRDC Canada figures that show 31.7% of married partners between 60 and 64 divorced between 1993 and 2003, as did a whopping 47.8% of those between 55 and 59.

The cost of a typical divorce, Feldstein says, runs anywhere between $5,000 and $100,000. Add to that the cost of maintaining two households out of the same pool of assets, pensions and income that formerly supported one. It's no wonder, then, that divorcees of any age face reduced prospects in retirement.

Divorce drives debt

Divorcees stood out in a 2009 StatsCan study of retired individuals 55 and over. Author Katherine Marshall noted that 43% of divorcees in that cohort were in debt. Unlike those who never married or who were widowed, retired divorcees were much less likely than couples to feel that their income was adequate for their monthly expenses.

A careful reading of Marshall's study leads to reasoned optimism about the majority of seniors. Though one in three retirees held some form of debt, its distribution was skewed. Seventeen percent of retired households owed over $100,000, while over half of those in debt owed less than $25,000. So there's still potential for bequests and other late-life gifts, provided you choose and cultivate your prospects carefully.

Thinking about debt and giving

What would make Mr. or Ms. Retired Donor more likely to be indebted or debt-free? Marshall pointed to several other factors besides divorce.

Being retired

Non-retired couples were more likely to be in debt than retired couples of the same age. They also had the highest median value* owing, $50,000.

Being over 75

"The further along the life cycle," said Marshall, "the more time someone has had to repay any outstanding debts." Just 20% of those over 75 had some form of debt, compared to 48% of retirees between 55 and 64.

Being educated

"As the level of schooling goes up," she reported, "so does the incidence of holding debt." But the thoughtful prospect researcher won't automatically disqualify the retired university grads. Marshall commented that insofar as higher education corresponds to financial knowledge, borrowing may reflect a sound strategy for financing investments or smoothing consumption.

Being a homeowner

Homeowners, she discovered, are "1.4 times more likely to hold debt than non-owners," and not just because of their mortgages. A small number of indebted homeowners have a mortgage only, but more of them have consumer debt or a combination of the two. On the other hand, a home is a valuable asset that increases estate value and may make a bequest possible.

Having higher net worth or lower income

The higher the household net worth among retirees, the lower the probability of debt, especially if the household net worth is $400,000 or more. But when Marshall looked at income she found just the opposite: households with an annual income under $25,000 were less likely to hold debt than those in higher income groups.

You'd be right to assume that the debt-free are your best prospects for bequests and other lifetime gifts. Eighty-nine percent of debt-free retirees told Marshall their income was sufficient for their monthly expenses, and 82% thought their financial situation was what they expected or better. Among those holding debts, the proportions are somewhat lower: 79% or less found their incomes sufficient, and just 70% said their financial situation was what they'd expected.

Common sense and caution are the guidelines when the possibility of debt enters the bequest picture. You can't assume that an elder is debt-free. But neither can you assume that an indebted older donor can't create a meaningful legacy.

If anything's a donation deal-breaker, it will likely be a past divorce. That seems to leave people feeling more vulnerable than any other single financial circumstance.

*median value: the point at which half the cohort owes less and half the cohort owes more.

For more information, Financial Post, http://www.financialpost.com/personal-finance/wealthy-boomer/immunity+bankruptcy/3383355/story.html; Douglas Hoyes, http://www.bankruptcy-canada.ca/trustees-talk/bankruptcy-alternatives/20100823/bankruptcy-in-canada-for-seniors-with-tax-debt.html; Retiring with debt, Katherine Marshall, Statistics Canada, April 27, 2011; Indicators of Well-being in Canada, Human Resources and Skills Development Canada, http://www4.hrsdc.gc.ca/.3ndic.1t.4r@-eng.jsp?iid=76.