Canadian Household Debt Hits Record High, Spurring Rise in Consumer Insolvencies

A recent study by Bankruptcy Canada has unveiled troubling statistics regarding household debt and consumer insolvencies across the nation. As of the latest report, Canadian households have amassed an unprecedented $2.41 trillion in debt, with unsecured debts, which include auto loans, credit card debt, and installment loans, accounting for 26 percent of this figure, or approximately $626.6 billion.

Surge in Auto Loan Debt

One of the concerning trends highlighted in the study is the significant increase in auto loan debt, which has surged by 6.2 percent compared to the same period last year. This rise contributes to the mounting financial burden on Canadian families. Currently, the average Canadian debtor is grappling with an average of $55,328 in unsecured debts, reflecting a year-over-year increase of 0.94 percent.

Mike Sands, a Trustee at Bankruptcy Canada, pointed to factors such as escalating manufacturing costs and ongoing supply chain disruptions that have substantially driven up the cost of vehicle ownership. These issues have compounded the difficulty many Canadians face in managing their finances.

Increasing Payment Delinquencies

The report sheds light on an alarming trend of rising delinquencies, particularly among those struggling to keep up with payment deadlines. A notable rise has been observed in consumers missing payments for 90 days or more, with this occurrence climbing steadily each year. Sands, a Licensed Insolvency Trustee, indicated that the increasing cost of living has compelled many Canadians to rely heavily on credit to meet their day-to-day expenses, putting further strain on their financial situations.

Among the demographics, younger consumers, particularly those under 30, are facing rising credit card balances, with data suggesting the largest increases in this age group. Furthermore, individuals under 35 have shown an 18 percent higher likelihood of having a history of delinquent payments. Across all age segments, credit card balances have risen by 13.7 percent compared to previous reports.

Impact on Homeowners

The study also notes the rising trend of insolvencies among homeowners, which, despite remaining relatively low overall, has doubled in recent months. Sands attributes this increase to the sharp rise in mortgage rates experienced over the past few years, compounded by expectations of sustained high rates into 2024. These factors have contributed significantly to rising bankruptcy rates among homeowners, as many are left with minimal equity and unable to refinance to alleviate their unsecured debt obligations.

Increasingly, homeowners facing financial strain are turning to consumer proposals—an option allowing them protection from creditors while enabling them to address their unsecured debts. Sands emphasizes the critical situation many homeowners find themselves in: “Homeowners facing insolvency have little equity and are therefore unable to refinance and cover their unsecured debt obligations. That is why many homeowners turn to a consumer proposal to handle their unsecured debts.”

Outlook for 2024

The trends reported have raised concerns within personal finance circles, with Bankruptcy Canada forecasting that consumer insolvencies will likely continue to climb throughout 2024. Factors such as high interest rates and rising living costs are expected to further challenge Canadian households as they navigate an increasingly precarious economic landscape.

The report serves as a stark reminder of the financial pressures many Canadians are experiencing and underscores the urgent need for effective financial planning and support systems to help individuals manage their debt responsibly.