Who's Filing Insolvency & Why

Hoyes, Michalos & Associates Inc. has provided consumer proposal and personal bankruptcy services to individuals in Ontario since 1999. As required by law, we gather information about each debtor who files with us. Our 2017 Joe Debtor study, the fifth released since 2008, reviewed the details of more than 6,700 personal insolvencies in Ontario from January 1, 2015, to December 31, 2016. We then compared the results of this profile with our previous Joe Debtor reports to identify any trends.

Here are our key findings.
Full PDF: Joe Debtor 2017 The Vulnerable Debtor
Press release

Joe Debtor 2017: Vulnerable and Struggling

The reasons people turn to a Licensed Insolvency Trustee for debt relief vary, not only from person to person but also from year to year. Broad economic factors have a significant impact on the number of insolvencies filed in any given year. This is not surprising; a period of high unemployment is typically followed by an increase in consumer insolvencies. However, what has become evident through our newest Joe Debtor study is that economic factors also have a significant effect on the demographics of who files bankruptcy.

Consumer insolvency rates per capita have dropped to 15-year lows in Ontario, despite record levels of consumer debt. Unfortunately, not everyone is benefiting from Ontario’s relatively strong economic conditions. Those who are filing a bankruptcy or consumer proposal today are much more likely to be in an at-risk household that is already experiencing financial distress before factoring in debt repayment.

For today’s insolvent person, income level is a much greater determinant of whether he or she will file insolvency than in previous years. Our 2017 study revealed that a higher proportion of lower-income earners are filing insolvency than we saw in past studies:

• Joe Debtor’s average household income is 41% below the median Ontario household income.
• Almost two-thirds (64%) of insolvent debtors have an after-tax household income in the bottom quartile of household earnings in Ontario.

“There has been a shift in the face of the average Joe Debtor. Income insecurity is a bigger cause of Ontario insolvencies than ever before. Joe Debtor is using debt JUST to make ends meet.” — Ted Michalos, Licensed Insolvency Trustee and co-founder

While not living in poverty, today’s Joe Debtor is using debt to make up for a low, intermittent or stagnating income. Already having difficulty making ends meet, his lower-than-average income makes it almost impossible for him to manage his debt-repayment obligations once his debts begin to accumulate:

• Joe Debtor owes an average of $52,634 in unsecured debts, 7% below our previous study. It now takes less debt for Joe Debtor to reach a financial crisis.
• Joe Debtor owes $1.85 in unsecured debt for every dollar he earns (after tax). His total debt-to-income ratio (including secured debt) is an alarming 778%.

Today, a person filing for debt relief is much more likely to be in a financially vulnerable risk group, such as young millennials (defined as those 18–29 in our study), seniors, student debtors or lone-parents. Women are also much more likely than men to be in a vulnerable risk group.

“We have seen an alarming increase in insolvency rates among millennials, seniors, lone-parents and debtors with student debt; those most likely to be struggling financially and tempted to turn to debt to keep afloat.” – Doug Hoyes, Licensed Insolvency Trustee and co-founder.

Joe Debtor’s average take-home pay has dropped 2% since our last study (published in 2015), to $2,377 a month. The decline is attributable to a higher proportion of income-insecure, at-risk households filing insolvency than in previous years:

• Young debtors aged 18–29 account for 14% of all insolvency filings, up from 12% in our previous study. Six in ten young insolvent debtors list financial issues as a primary cause of their insolvency due to student debt and the use of payday loans.
• Senior debtors aged 60 and over now make up 12% of all insolvencies, continuing the growth trend begun in 2011. Six in ten insolvent seniors live on their own, struggling to repay debt on top of a rising cost of living, all on a reduced income. They are more likely to be widowed, divorced, on a disability and retired than was found to be the case in previous studies.
• Student debt is a factor in 15% of all insolvencies, up from 13% two years ago. One in five female debtors has a student loan.
• Lone-parents account for 17% of all insolvent debtors. Lone-parents are at a substantially higher risk of filing insolvency than dual-parent families. While lone-parent families make up 20% of Canadian families, 43% of insolvent debtors with a dependent are lone-parents.
• Female debtors are almost twice as likely to have student debt as male debtors, and they are more than three times as likely to be lone-parents.

It is not accurate to say that Joe Debtor is simply financially irresponsible; he is not using credit to live beyond his means, he’s using it to makes ends met. Joe Debtor is struggling with the rising cost of living and using credit to supplement his below-average income:

• He is spending 41% of his income on housing costs, more than the recommended maximum of 35%.
• He is spending 31% of his income on personal and living expenses, more than the recommended maximum of 20%.
• He has just $302 a month available to meet his unsecured debt payments.
• His interest costs alone amount to an estimated $960 a month.
• Each month that goes by increases his overall debt load.

It is this monthly shortfall that causes Joe Debtor to turn to payday loans:

• One in four insolvent debtors (25%) are using payday loans, more than ever before.

In summary, our newest Joe Debtor study paints a stark picture of the insolvent debtor during a prolonged period of economic recovery. This is the “core” insolvent debtor: at-risk households who are struggling financially but are doing just well enough to qualify for more credit. Unfortunately, they enter a cycle of borrowing that is not sustainable and eventually leads to their filing insolvency.