Average income among those filing a bankruptcy or consumer proposal is increasing according to a study conducted by Licensed Insolvency Trustees Hoyes, Michalos & Associates Inc. Average household income rose 5.5% in 2019 to $3,162 (monthly after-tax), while median income increased 5.8% to $2,883.
"People are not getting a raise of this magnitude," says Doug Hoyes, Licensed Insolvency Trustee. "What is happening is that more prosperous households are now reaching the breaking point and tipping into insolvency."
While average income rose 5.5%, average household expenses grew by 6.4%. The average insolvent debtor had just $264 a month to put towards debt repayment in 2019, less than $273 a year earlier. In the meantime, average consumer debt balances among insolvent debtors grew by 1.9% to $58,923.
"More households have fewer funds available after paying for rising living costs to meet debt obligations," adds Ted Michalos, Licensed Insolvency Trustee. "Combine this with high, pre-existing debt, and you have a debt repayment problem."
In 2019, 39% of insolvent debtors carried at least one loan from a high-cost payday lender, including larger installment loans and lines of credit, up from 37% in 2018. Average payday loan debt among insolvent payday loan users grew by 11.3%. Personal loans increased by 8.7%, driven largely by high-interest financing loans, which often carry an interest rate of 39% to 49%. More than 1 in 10 (11.4%) filed insolvency with a shortfall on a financed vehicle, up from 10.2%.
"Not only is the overindebted consumer struggling to pay everyday expenses, but his credit profile has worsened, increasing his servicing costs," says Doug Hoyes. "The average insolvent debtor had 3.3% less available cash flow to repay interest costs on unsecured debt that rose by an estimated 8%."
"These financial pressures are affecting all ages; however, the pace of growth among young Canadians is staggering," says Ted Michalos. Those under the age of 40 now account for almost half, 47.1%, of all insolvencies, a level not seen since we began our study in 2011."