Income Insecurity Driving Insolvencies


Category: Personal Bankruptcy Leave a comment

income-insecurity-driving-insolvenciesWith inflation, the rising cost of housing, and a large part-time workforce, it’s no surprise Canadian consumer insolvencies grew 3.5% in 2016. Income insecurity is a contributing factor because Canadians are increasingly turning to debt to pay for every day expenses. It’s not as though they’re living beyond their means. In fact, Ontario Licensed Insolvency Trustees Hoyes, Michalos & Associates Inc. published a study that says just the opposite:

he’s using debt just to make ends meet

Who is The Average Insolvent Debtor?

In this case “he” is referring to Joe Debtor. The average face of debt according to the biennial study published this past March. The study examines information of insolvent debtors and their financial situation at the time they filed insolvency. The biggest shock:

The typical insolvent person has just $302 each month to pay back debt that’s carrying an estimated $960 a month in interest.

the math just doesn’t work

With enough money to qualify for credit, but not enough to cover a rising cost of living, Joe Debtor finds himself stuck.

Where Income Insecurity Comes In

The Ontario study found that the average Joe Debtor‘s household income was 41% below the median Ontario household income. Although the study is based in Ontario, income insecurity isn’t focused solely in Ontario. Canadian provinces dependent on oil saw a rise in unemployment, which led a corresponding rise in their consumer bankruptcies and consumer proposals.

Consumers with real estate in high performing markets like British Columbia and Ontario have fared better than those without home ownership. People are able to borrow against their homes to pay off their debt so long as they can continue their mortgage payments. This option isn’t available to all Canadians, especially those with a lower income.

Growing Insolvency Rates

The study pointed to a few high-risk groups that were particularly prone to struggle with debt.

  1. Seniors: the study states that seniors are the fastest growing high-risk group for filing insolvency. They now make up 12% of all insolvent debtors. The problems isn’t that they’re on a subsidized income, the main problem is that they carried debt into retirement.
  2. Millennials: Insolvent debtors aged 18-29 have grown year over year. Student debt, paired with easily accessible credit, not to mention that 38% of insolvent millennial debtors had payday loans. It’s no wonder why this group is steadily growing insolvent.
  3. Single Parents: With only a single income, with around the same amount of expenses, single parents are twice as likely to become insolvent than two-parent households. Many single parents are women, and one in five carry student debt.

Additional information and the full study can be found at joedebtor.ca

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