Joe Debtor: At-Risk Canadians Drawn Into Cycle of Debt

Posted in In The News
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

who-is-joe-debtor-study-infographic-2015-featureOur newest Joe Debtor study reveals that, for a core group of Canadians, debt is a survival tool. Yes, insolvency rates in Canada and Ontario have declined. In Canada, total personal insolvencies (including personal bankruptcy and consumer proposal filings) declined 0.5% in 2014. At the same time Ontario insolvencies fell 7%.  Yet certain at-risk groups continue to struggle. The Bank of Canada estimates that 12% of families have debts greater than 250% of disposable income.

Our latest Joe Debtor study explains a little about why, and how, Canadians face financial distress. Our study shows that single parents, students and seniors make up an increasing share of insolvent debtors.  Marginalized by their financial and personal circumstances, these at-risk groups are increasingly turning to subprime debt options to keep up with their debt payments.

This creates a cycle of debt that is difficult to reverse, except through some form of formal debt restructuring like bankruptcy or a consumer proposal.

Click to enlarge an infographic of our key findings or ready our analysis below. The full study, Joe Debtor: Marginalized by Debt can be found here.

Joe Debtor study Hoyes Michalos

Click to view full infographic

At Risk Groups Facing Insolvency

We often hear that the solution to avoiding excessive debt is to ‘spend only as much as you earn’. Unfortunately for many individuals struggling with debt payments, this over simplifies the problem they face.  Our findings reveal that as their debt payments consume an increasing share of their overall budget, they rely on more debt to keep afloat.  Certain groups are more at risk than others due to their economic circumstances.

Seniors increasingly at risk and turning to payday loans

While the average age of an insolvent debtor is 44, more seniors and pre-retirement debtors are filing bankruptcy. Over the past two years, over 30% of all insolvencies we completed involved debtors over the age of 50, and this rate has increased continuously since we first began our study.

seniors and debt

Seniors and pre-retirement debtors were the only age groups to increase their overall unsecured debt levels and experience a higher share of insolvencies.  With an unsecured debt load of $68,677, seniors 60 and older carried the highest unsecured debt of all age groups. Almost half of this debt was credit card debt however the more worrying trend was the heavy use of payday loans by seniors. Almost one in ten seniors (9%) carried at least one payday loan with the average having 3.7 loans outstanding by the time they filed insolvency. They had the highest payday loan debt of all age groups at $3,693, an amount that equaled 167% of their income.

Parenting alone creates financial problems

Almost one in five insolvent debtors were lone parents, either because they were single or through a marital breakdown. Contrary to what you might expect, these are working single parents, struggling to raise a family on a single income. Overall, 86% of lone parents who filed bankruptcy were working, however their average household income was 4% below that of Joe Debtor. This lower income makes it difficult to stay on top of fixed payment obligations like car loans, student loans and mortgages.  For this reason, loan parents are more likely to file bankruptcy despite a lower than average overall debt load and are more likely to have accounts in collection.

Women struggling with massive student debt

Student loans are still a debt crisis for many and the burden is increasing. Just over 13% of all debtors had student loans. The average loan outstanding increased 4.3% to $13,818. The inability to find income at a pay level necessary to support rising student loan debt is an increasing financial problem for young debtors, both male and female.  Our study reveals however that Jane Student is more likely to be unemployed or off work for other reasons, including maternity leave. This may explain why 60% of all student loan debtors were female and why Jane Student has a higher student loan debt at the time of insolvency than Joe Student.

student debtor male vs female

Debtors Choosing Subprime Debt Options More Often

The average insolvent debtor owed $56,545 in unsecured debt, down 2% from our previous study. Most of this decline was driven by a reduction in the average credit debt outstanding (down 12%). This reduction may be the result of consumers choosing to reduce their reliance on credit card debt or, also likely, the tightening of credit available for high risk borrowers.

This tightening of credit may explain the dramatic increase we have seen in the use of subprime debt by insolvent debtors.

The percentage of debtors with at least one payday loan increased to 18%, up from 12% two years ago. The average payday debt also increased. Owing an average of $2,749 on 3.5 payday loans, Joe Debtor is using payday loans more often, taking out more loans and borrowing more overall from payday lenders.  While payday loans were being used by all age groups, seniors were borrowing the most.

Payday Loans



% of debtors18%12%
Total loan debt$2,749$2,463
Average loan size$794$743
Number of loans3.53.3

We also saw a dramatic increase in the use of longer term, fast and easy cash instalment loans.  The use of the low credit, quick cash loans increased 5 fold since our last study. Borrowing an average of $3,608 on these types of loans, we also found that 78% of debtors using these high cost loan options also carried a payday loan. That means debtors are accessing these new debt products, not as an alternative to payday loans, but as one more source of temporary cash flow.

In other findings, we found that the average size of a secured car loan increased 12% since our last study. Longer term car loans, loan rollovers and higher financing ratios are increasing the insolvency risk for many borrowers.

Our study clearly showed that at-risk Canadians are using subprime debt to keep up with their growing debt payments.  Rather than borrowing more to keep up with debt payments, consider talking to a debt restructuring professional about your options. You may not need to file bankruptcy if you act sooner, rather than later. But increasing your debt will increase your risk.

For more information contact:

Douglas Hoyes, CPA, Trustee in Bankruptcy
Ted Michalos, CPA, Trustee in Bankruptcy


About J. Douglas Hoyes

Doug is our co-founder and is a Licensed Insolvency Trustee, Consumer Proposal Administrator, certified Insolvency Counsellor and Chartered Professional Accountant.

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