After falling during the pandemic, consumer insolvencies are once again increasing. Ontario insolvencies increased 15% year-over-year, while Canadian volumes rose by 11%. The pace of growth increased throughout the year, with Canadian insolvencies up an average of 19% in the second half of 2022 and Ontario insolvencies up 23%. Despite this, total insolvencies remain well below pre-pandemic highs.
Still, roughly 100,200 Canadians and 34,700 Ontarians filed a bankruptcy or consumer proposal in 2022.
Our most recent bankruptcy study provides insight into who filed insolvency in 2022 and why. We identify changes in trends and explain possible economic and systemic causes.
As required by law, we gather information about each person who files a consumer proposal or personal bankruptcy with us. We examine this data to develop a profile of the average consumer debtor who files for relief from their debt (we call this person “Joe Debtor”). We use this information to gain insight and knowledge as to why consumer insolvencies occur. Our 2022 consumer debt and bankruptcy study reviewed the details of 2,700 personal insolvencies in Ontario from January 1, 2022, to December 31, 2022, and compared the results of this profile with study results conducted since 2011 to identify any trends.
HALF OF INSOLVENCIES FILED BY MILLENNIALS
Half of all insolvencies (49%) are filed by Millennials, even though they make up less than 27% of total Canadians aged 18 and over1. Millennial debtors are 1.4 times more likely to file insolvency than Generation X relative to the population and 1.7 times more likely than Baby Boomers.
Millennials were the only age group to experience a rise in unsecured debt, up 9.1% in 2022.
- More than 1 in 3 (35%) carry student loans. When they do, they owe, on average, $16,725, representing 30% of their total unsecured debt load.
- More than half (55%) carry at least one extremely high-cost loan with average balances totaling $11,940, up 17.4% from 2021. These debts might include payday loans or extremely high-interest lines of credit or installment loans.
- 2022 saw a return to credit card debt among Millennials. 87% of Millennials had credit card debt, up from 84% in 2021, and average credit card debt increased 1.5% to $13,948.
- Tax obligations rose significantly among Millennial debtors. Almost half (46%) had tax debt in 2022 (up from 37% in 2021), while average tax obligations increased 22.6% to $12,137. CERB collection was a contributing factor.
OVER HALF OF INSOLVENT DEBTORS HAVE AT LEAST ONE RAPID HIGH-COST LOAN
The subprime credit market has changed in recent years. Payday lenders have expanded into longer-term credit options, including high-interest lines of credit and installment loans. Other sub-prime lenders specializing in extremely high-cost installment loans have expanded market share among desperate and low-credit borrowers.
We have historically reported on the significant rise in the use of payday lenders among insolvent debtors. We have seen not just an increased use of traditional payday loans, but a much more dramatic rise in the use of larger, longer-term, ultra high-cost loans. These loans typically carry a minimum interest rate between 29.99% and 59.99%. They also include relatively high fees in addition to higher interest rates. Fin-tech options like Buy Now Pay Later (BNPL) apps have also begun to appear more frequently among insolvent debtor liabilities. While BNPL loans charge no interest if paid on time, heavily indebted borrowers turn to these loans as a quick and easy source of credit.
Given this, we have defined a new category of loans for review: Rapid High-Cost Loans or Rapid Loans for short. We classified loans into this category if they met a significant number of the following criteria:
- Fast funds, easy application process, often online.
- No collateral required.
- High odds of approval regardless of credit score.
- Payday loan fees or interest rates of 29.99% or higher.
- Loans can be short term (payday) or installment (up to 60 months).
- May carry weekly or bi-weekly payment options so payments appear low.
- Often include additional fees or high insurance premiums.
We look beyond payday lenders and have included other unsecured easy installment loan options as well as Buy Now Pay Later loans.
In 2022, more than half (53%) of insolvent debtors had at least one Rapid Loan, and usage is increasing.
Many insolvent debtors owe money to more than one rapid high-cost lender. In 2022, the average insolvent debtor with a Rapid Loan owed a total of $12,100 to 4.0 different lenders, up from $10,819 to 3.8 lenders in 2021.
The average individual loan size was $3,039, up from $2,858 a year earlier. Almost four in 10 (37%) are over $2,500; from our experience, these larger loans are primarily high-cost installment loans.
For those with a Rapid Loan, these high-interest loans accounted for almost one-third (30%) of their unsecured debt.
In most cases, insolvent debtors turn to Rapid Loans in addition to credit cards – 85% of Rapid Loan debtors have at least one credit card compared to 88% for Joe Debtor. Often they have maxed out these cards or need a payday or installment loan to lower the balance sufficiently to continue to use their credit cards to pay for living costs.
While used by all debtors, Rapid Loans are more popular among younger debtors. In 2022, 62% of those aged 18-29 had at least one Rapid Loan, with usage still well above 50% for those aged 30 through 49.
While subprime lending remains a small component of overall lending in Canada, its fast growth is creating a crisis among heavily indebted borrowers. These types of loans are a significant driver of Canadian consumer insolvencies.
For more detailed information on the profile of the average insolvent debtor using Rapid Loans, see our supplementary study.
The remainder of this report focuses on the profile of the average insolvent debtor, Joe Debtor.
2022 Consumer Debtor Profile: The Average Insolvent Debtor
Below is a summary of debtor characteristics from our 2022 insolvency study.
|Divorced or Separated||21%||20%|
|Average family size (including debtor)||2.0||2.0|
|Likelihood of having dependent(s)||36%||34%|
|Likelihood of being a lone-parent||17%||18%|
|Average monthly income (debtor)||$2,593||$2,842|
|Total unsecured debt||$50,484||$49,316|
|Likelihood they own a home||3%||2%|
|Average mortgage value (homeowner)||$375,888||$395,545|
The 2022 insolvent debtor owed an average of $49,316 in unsecured debt and an additional $9,033 in non-mortgage secured debt (primarily a car loan or lease).
He is almost as likely to be male as female (50% vs 49% respectively). In 2022, the Office of the Superintendent of Bankruptcy changed its statutory forms to enable individuals to opt out of reporting gender, with 1% unreported.
Joe Debtor continues to trend younger and is 42.1 years old, slightly younger than 42.3 in 2021. This is a trend we have seen since 2016. Student loan debt and the rising popularity of high-cost lending products, particularly among younger Canadians, are leading causes.
Almost one-half are single (48%), consistent with a younger demographic, while 30% are married, 20% are separated or divorced, and 2% are widowed.
More than 8 in 10 (84%) live in a one-income household. The average household size is 2.0, 34% have dependants, and 18% of households are headed by single parents.
CREDIT AND ASSET PROFILE
The average insolvent debtor in 2022 owed $49,316 in unsecured debt, down 2.3% from 2021.
|Consumer Debt Profile||2020||2021||2022|
|Other personal loans||$15,501||$15,116||$14,280|
|Credit card debt||$16,548||$15,004||$13,848|
|Other unsecured debt||$3,470||$3,715||$2,978|
|Average unsecured debt||$48,894||$50,484||$49,316|
|Other secured debt||$9,661||$8,700||$9,033|
|Total consumer credit||$58,555||$59,183||$58,349|
In 2022, the average insolvent debtor filed insolvency on less unsecured debt. While still extraordinarily high, Joe Debtor’s consumer debt-to-income ratio fell to $1.71 for every dollar of net income in 2022. In comparison, the average Canadian owes an estimated $0.48 in consumer debt (excluding mortgage debt) for each dollar of disposable income2.
Rising inflation and rising use of high-interest debt are two main reasons Joe Debtor is filing insolvency on less unsecured debt, despite a 9.6% increase in income.
- 88% of debtors had credit card debt. Those with a credit card carried an average total balance of $15,798 on 2.7 cards, with balances down 9.3%.
- 53% had at least one Rapid Loan, up from 46% in 2022. For those with a Rapid Loan, balances increased 11.8% to $12,100.
- 23% had student debt, up from 22% in 2021. Average student loan debt (among those with student loans) decreased by 6.7% to $15,863.
- 49% had tax debt, up significantly from 40% in 2021 and a record high. Some of the increase in tax debtors (roughly one-quarter) is related to CERB overpayment collection. Average taxes owing (those with tax debts) fell 15.8% to $16,649, although tax obligations among Millennials increased 22.6%, much due to CERB collection.
- 2% of insolvent debtors were homeowners with an average secured mortgage of $395,545 (up 5.2%).
- 65% had a vehicle upon filing, with 63% of those financed. Not surprisingly, the average value of vehicles increased with market conditions, up 17.6% to $14,497. Rising car values also lowered the number and magnitude of negative vehicle equity for many insolvent debtors. Only 19% of encumbered vehicles had negative equity, down from 25% in 2021 and a pre-covid average of 31%. For those carrying negative vehicle equity, average negative equity fell 12.8% to $9,348.
- 33% had RRSP savings with an average balance of $1,207.
INCOME AND EXPENSES
Post-pandemic, Joe Debtor has also returned to work. In 2022:
- 81% of debtors were employed, consistent with pre-pandemic levels
- 7% of debtors were unemployed
- 5% were retired
- 7% were disabled, on maternity leave or other
Average debtor income increased 9.6% to $2,842. Average household income increased 6.9% to $3,207. This does not mean Joe Debtor got a raise of 9.6%; rather, Canadians with slightly higher income are now also filing insolvency, where they were previously able to keep up with debt repayment.
- Housing costs accounted for 43% of total household income, above the recommended maximum of 35%.
- Average monthly rent or mortgage payments increased 5.5% to $1,063.
- Transportation costs totaled 20% of average household income and increased 14.0% as people returned to work.
- Other personal and living expenses accounted for 29% of household income up 2.8%.
Insolvent debtors in 2022 were left with just $250 to pay interest and principal payments on $49,316 in unsecured credit. The interest alone on this level of debt for the average debtor amounts to more than $1,950 per month.
DEBTOR PROFILE BY AGE GROUP
Canadians are filing insolvency younger than ever before, with the average age of the insolvent debtor (42.1) the youngest since we started this study 11 years ago.
Below are some highlights of key debtor characteristics by age group.
18 to 29
Young debtors aged 18 to 29 accounted for 15% of all insolvencies, down slightly from 2021 (16%).
On average, young debtors owed $34,641 in unsecured debt, an increase of 11.0% from the prior year.
- Young debtors are heavy users of Rapid Loans. 62% carried at least one Rapid Loan with a total balance owing of $10,780, up 13.9%.
- 88% carry credit cards with an average credit card debt of $9,161, up 18.1%. They are the only age group that saw increased credit card debt.
- 35% are student debtors, with an average student loan debt of $14,238, up an alarming 35.2%.
- 44% have tax debts, and their average tax obligation increased 36.2% to $6,863.
Debtors in this age group were more likely to be male (52%), and three-quarters (75%) were single.
Most have returned to work, with 86% working at the time of filing. Average income among those aged 18 to 29 also increased 9.4%, likely because of returning to work post-pandemic.
Despite this rise in income and return to work, debtors 18-29 saw a massive increase in debt obligations, with inflation, the cost of returning to work and the cumulative impact of high-cost debt likely key drivers.
30 to 39
Debtors aged 30 to 39 continue to make up the highest percentage of those filing insolvency, accounting for 34% of all filings. They owed, on average, $48,261 in unsecured debt, up 2.1%.
- 87% have credit card debt with a balance owing of $14,619 on an average of 2.6 cards
- 56% have Rapid Loans with a total balance of $11,861, up 14.8%.
- 35% carry student loan debt with an average balance of $16,917, down 21.4% from prior years. Women are more than twice as likely to struggle with student loans than males in this age group. (69% versus 31% – those with a student loan).
- 47% have tax debts with an average tax obligation of $12,886, up 15.2%
Debtors in this age group are evenly split by gender. Additionally, 53% are single, while 24% are single parents.
Having returned to work post pandemic, 86% were employed at the time of filing. Average debtor income increased 7.8%. With a modest increase in unsecured debt, the average 30-year-old debtor saw their consumer debt-to-income ratio drop to 166% from 176% in 2021.
40 to 49
Debtors aged 40 to 49 accounted for 24% of all insolvencies. They owed, on average, $52,239 in unsecured credit, down 7.6%.
- 88% have credit cards, owing on average $15,826 on 2.8 cards.
- 53% use Rapid Loans, owing on average $13,715, the highest dollar amount owing of any age group.
- 18% still had student loan debt with an average balance of $16,004.
- 49% have tax debts with an average balance of $18,845.
Debtors in this age group were slightly more likely to be female (50% to 49% male). Many are still single (43%), while 33% are married and 24% divorced. Women are more likely to be single parents (33%) than male debtors in their 40s (14%).
Debtors in this age group were working at the time of filing (87%) and were most likely to be self-employed (9%) compared to other age groups.
Debtor income for those in their 40s increased 9.8%, and when combined with a drop in debt load, their consumer debt-to-income ratio fell to 166% from 195% in 2021. Debtors in their 40s reported the second-highest increase in household expenses (after seniors), up 8.3%.
50 to 59
Insolvency filings among those aged 50 to 59 accounted for 16% of all filings, the lowest level since we began our study in 2011. Debtors in this age group owed an average of $53,134 in unsecured debt, down 11.1%, the largest drop rate among all age groups.
- 90% have credit card debt with an average balance of $20,002 on 3.0 cards.
- 49% use Rapid Loans owing $12,447 if they do.
- 53% have tax debts with an average balance of $17,973.
Debtors in their 50s were evenly split by gender and were the most likely of any age group to be divorced or separated (32%).
Debtor income increased 6.7%, and 79% were employed at the time of filing.
Insolvencies amongst seniors aged 60 and older dropped for the second year, accounting for 11% of all insolvencies. Average unsecured debt among those 60+ fell 0.5% to $60,920. Senior debtors have the highest dollar amount of unsecured debt among all age groups, including the highest dollar amount of credit card and tax debts.
- 87% have credit card debt owing $22,453 on 3.2 cards. Seniors have the highest credit card debt of all age groups.
- 37% use Rapid Loans with a total debt balance of $10,571.
- 55% have tax debts with an average tax balance of $30,770.
In 2022, seniors were slightly more likely to be male (50%) vs 49% female.
Only 40% were retired, while 51% reported being employed. A high percentage of insolvent seniors live alone (65%), and 82% are single-income households. Debtor income increased 17.4% as a result of more working seniors, although they also reported the highest rise in living costs, up 9.2%.
MALE VERSUS FEMALE DEBTORS
The trend towards gender parity continued in insolvency filings in 2022, with 49% of insolvencies filed by women.
- Male debtors owed, on average, $55,111 in unsecured debt, 27.1% more than the average female debtor.
- Female debtors saw their average unsecured debt fall 8.1%, while male debtors’ unsecured debt increased 2.7%.
- Female debtors are more likely than male debtors to have dependents (40% versus 28%) and are more likely to be single parents (26% versus 11%).
- Female debtors are more likely to struggle with student debt (31%) than male debtors (16%).
- Male debtors are slightly younger (41.9) than the average female debtor (42.3).
- Male debtors are more likely to have tax debts (52% versus 45%).
|% of all debtors||49%||50%|
|Non-mortgage secured debt||$7,953||$10,177|
|Average debtor income||$2,786||$2,897|
|Average household income||$3,118||$3,292|
|% with dependant(s)||40%||28%|
|% with student debt||31%||16%|
|Average student debta||$16,123||$15,408|
|% with Rapid Loan debt||54%||52%|
|Average Rapid Loan debta||$11,744||$12,495|
|% with tax debt||45%||52%|
|Average tax debta||$10,826||$21,635|
|a – those with student loans, Rapid Loans, or tax debt|
How to cite: Hoyes, Michalos & Associates Inc. Annual Bankruptcy Study, 2021. Published February 13, 2022. https://www.hoyes.com/press/joe-debtor/
- A generational portrait of Canada’s aging population from the 2021 Census https://www12.statcan.gc.ca/census-recensement/2021/as-sa/98-200-X/2021003/98-200-X2021003-eng.cfm – percentage calculated by Hoyes, Michalos
- Calculated by Hoyes Michalos from data provided by Statistics Canada Table 36-10-0639-01 Credit liabilities of households https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3610063901 and Table 38-10-0238-01 Household sector credit market summary table https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3810023801
Douglas Hoyes, CPA, Licensed Insolvency Trustee, Co-founder Hoyes Michalos.
Doug was inspired to bring his financial experience to work by helping individual people not corporations rebuild their financial future. Doug advocates for consumers needing debt relief to ensure they receive a fair and respectful debt management solution. He regularly comments in the media including publications and networks such as Canada AM, Global News, CBC, The Globe and Mail, The Toronto Star, Business News Network, The Financial Post and CTV News. Doug also posts regularly to our blog, on Twitter, Google+, and Huffington Post Canada.
Ted Michalos, CPA, Licensed Insolvency Trustee, Co-founder Hoyes Michalos
Ted Michalos strongly believes that debt management advice should be delivered without gimmicks and without tricks. He is enthusiastic about ensuring clients understand all of their options and that Hoyes Michalos helps them develop a custom-tailored plan to deal with their debts. Ted is a prolific writer, contributing answers and advice on our blog and on several insolvency and debt relief sites, including Advisor.ca. He has appeared as an expert on bankruptcy and debt-related matters including appearances on CBC News, Global TV and Business News Network.
Hoyes, Michalos & Associates Inc. is a Licensed Insolvency Trustee firm that has provided personal bankruptcy and consumer proposal services to individuals in Ontario since 1999. Co-founded by Doug Hoyes and Ted Michalos, we are one of the largest firms in Canada practicing exclusively in the area of personal insolvency. With offices throughout Ontario, Hoyes Michalos provides real debt management solutions to help Ontarian’s climb out of debt.
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