Canadians found racking up debts, approaching insolvency

Study reveals younger Canadians increasingly facing insolvency

Canadians found racking up debts, approaching insolvency

In a study conducted by Hoyes, Michalos & Associates Inc., a concerning trend in consumer insolvency in Canada has been highlighted, driven primarily by an increase in credit card debt and homeowner insolvencies.  

The average insolvent debtor now owes $54,084 in unsecured debt, marking a 9.7 percent rise from the previous year, the highest growth rate since 2011.  

This resurgence in credit card debt, as Doug Hoyes, a Licensed Insolvency Trustee, points out, stems from households using credit to manage in a rising cost environment, including making mortgage payments. 

The study reveals a significant uptick in credit card debt across all age groups, notably among those aged 18 to 29, with a 34.5 percent increase in balances in 2023. This rise in debt coincides with a shift towards older demographics in insolvency profiles, with debtors aged 40 and over now representing 53.4 percent of all insolvencies, up from 51 percent in 2022.  

These changes reflect the broader economic pressures of rising mortgage debt and interest rates impacting homeowners, doubling the rate of homeowner insolvencies in 2023 to 4.0 percent.  

Ted Michalos, another Licensed Insolvency Trustee, elaborates on the plight of vulnerable households turning to credit cards and lines of credit as their mortgage burdens grow until their credit options run out. 

Interestingly, insolvent homeowners possess nearly double the unsecured debt of the typical insolvent debtor, with an alarming figure of $77,780. The study further details that the average insolvent homeowner has just 7 percent home equity, often less than half their unsecured debt, making refinancing an impossible solution.  

These findings underscore the gravity of the financial challenges faced by Canadians, especially homeowners, in the current economic climate. 

Hoyes emphasizes the expectation for consumer insolvencies to continue rising in 2024, potentially at a pace of 20-30 percent, as long as the cost of living and interest rates remain elevated.  

The Hoyes, Michalos & Associates Inc.'s study, titled "Joe Debtor," meticulously analyzes the profiles and causes behind consumer insolvencies, offering a stark insight into the ongoing financial struggles within Ontario and across Canada.