Credit Card Debt Driving Consumer Insolvencies

Homeowner Insolvencies On The Rise

KITCHENER, ON, Feb. 5, 2024 /CNW/ - The average insolvent debtor owed $54,084 in unsecured debt, a 9.7% increase from 2022, primarily driven by a resurgence in credit card debt and homeowner insolvencies. The pace of growth was the highest seen since 2011, according to a study conducted by Licensed Insolvency Trustees Hoyes, Michalos & Associates Inc.

"Credit card debt balances are increasing as households use credit to make ends meet in a rising cost environment and as indebted homeowners use credit cards to keep up with mortgage payments," says Doug Hoyes, Licensed Insolvency Trustee.

Insolvent debtors across all age groups saw a rise in credit card debt, with the most significant increase among debtors aged 18 to 29, whose balances increased 34.5% in 2023.

Higher-income insolvencies became more prevalent in 2023, coinciding with changing demographics. While insolvent debtors aged 30 to 39 continue to represent the largest percentage (31.7%) of all insolvencies, the trend in 2023 was towards an older debtor. Insolvencies involving debtors aged 40 and older increased, rising to 53.4% of all insolvencies from 51.0% in 2022.

"Rising mortgage debt and interest rates have also begun to impact homeowner insolvencies," says Doug Hoyes.

Although the percentage of insolvent debtors who own a home remains low by historical standards, the rate doubled in 2023 to 4.0%.  

"Vulnerable households often turn to credit cards and lines of credit to keep up with mortgage payments until their credit options are exhausted," says Ted Michalos, Licensed Insolvency Trustee.

Insolvent homeowners have nearly double the unsecured debt ($77,780) of the typical insolvent debtor.

"The average insolvent homeowner has just 7% home equity, and that home equity amounts to less than half their unsecured debt obligations," adds Ted Michalos. "They have insufficient home equity to refinance and therefore turn to a consumer proposal to deal with their unsecured debt."

"As long as the cost of living and interest rates remain high, we expect consumer insolvencies will continue to rise in 2024 at the current pace of 20-30%," says Hoyes.

For more information, see the complete Joe Debtor study here: https://www.hoyes.com/press/joe-debtor/.

About Hoyes, Michalos & Associates, Inc. Hoyes, Michalos & Associates Inc., a Licensed Insolvency Trustee firm co-founded by Doug Hoyes and Ted Michalos in 1999, has established itself as the leading voice on personal debt issues in Ontario. Hoyes Michalos provides real debt management solutions to help Ontarians climb out of debt, including consumer proposals and personal bankruptcy, with offices throughout Ontario. Further information is available at www.hoyes.com

SOURCE Hoyes, Michalos & Associates Inc.

Douglas Hoyes, CPA, Licensed Insolvency Trustee, [email protected]; Ted Michalos, CPA, Licensed Insolvency Trustee, [email protected], 1-866-747-0660