Canadian household debt continues to increase and Ontario is no different; and we can’t entirely blame the problem on rising house prices and mortgage debt. In fact TransUnion recently reported that non-mortgage debt increased 2.75% in the fourth quarter of 2016. Despite this, the per capita consumer insolvency rate will hit a 15-year low. We estimate that the consumer insolvency rate per 1,000 Ontario adults will be 3.6 in 2016. The previous low in Ontario insolvencies was 3.5 per 1,000 adults in 2001.
So if debt is growing, why are bankruptcies and consumer proposals in Ontario so low? More importantly why do some people file bankruptcy, while others carrying excessive consumer debt do not?
Ontario Bankruptcy and Proposal Filings
According to Statistics Canada, a total of 39,611 individual Ontarians filed a bankruptcy or consumer proposal in 2016, a decline of almost 1%. Low unemployment, low interest rates and a booming real estate market have kept a lid on insolvency growth in Ontario.
Below is a summary on insolvencies by geographic region as summarized by Hoyes Michalos based on insolvency statistics by FSA provided by the Office of the Superintendent of Bankruptcy (OSB). Regional FSA allocations may differ slightly from annual economic region data provided by the OSB as the regional data summarized by Hoyes Michalos provides additional location details than is available by economic region.
|Consumer Insolvencies||Total Growth||Growth Bankruptcy||Growth Proposal|
|City of Toronto||2,210||2%||12%||-10%|
|Newmarket & Area||646||-5%||-2%||-9%|
|North Bay Region||520||7%||45%||-20%|
|Orangeville & Area||289||2%||7%||-5%|
|Parry Sound-Huntsville Region||415||9%||16%||4%|
|Sault Ste. Marie Region||372||14%||-1%||21%|
|Thunder Bay Region||548||0%||15%||-8%|
|*Region includes surrounding rural areas|
Who Might Need To File Bankruptcy or a Proposal?
Our 2017 Joe Debtor study on personal insolvency clearly reveals that the average person filing bankruptcy in Ontario (or making a proposal) is not using credit to pay for luxuries, but is using credit to make ends meet. He is living life financially on the margin. More than likely earning an income significantly below the Ontario median, he cannot keep up with the rising cost of living and so uses debt to balance his budget.
What we are seeing in Ontario is a tale of two types of heavily indebted consumer.
The first, we’ll call him John, has over-extended his credit card debt, owes money on a bank loan or two and might have a couple other outstanding debts. John has two advantages over Joe Debtor, despite having the same debt: he has a higher paying job so can afford his interest payment and owns a home that has appreciated significantly in the last couple of years. John is more likely able to qualify for a lower-interest home equity loan to refinance his existing unsecured debt. As long as John is able to make his new, lower consolidated debt payments, John can avoid filing bankruptcy.
What makes Joe Debtor different is that he is less likely to own a home (only 17% of insolvent debtors in our 2017 study were homeowners) and if he does he likely does not have enough equity to deal with his outstanding credit card and other debts. So he is not able to restructure his debts through a consolidation loan. For Joe Debtor, the only viable solution is to file bankruptcy or make a proposal. The longer he waits, the more debt he accumulates because his interest costs are already more than the amount he has available at the end of the month to put against his debts.