Low Income Ontarians More Prone to Debt Problems (Ontario Study).

• Author: Hoyes, J. Doug
• Position: Special Report: Poverty and Homelessness

Over the last two decades, precarious or insecure employment in Canada has increased by almost 50%, as 1 in 7 Canadians lives in poverty. Part-time work is becoming more common. Wages are not increasing fast enough to keep up with rising costs, resulting in higher personal debt levels. All of this explains why a bankruptcy study conducted by my firm found that low income and income insecurity are a much greater determinant now, as compared to previous year, of whether or not someone will have debt problems and file for insolvency.

In our findings, the average debtor in Ontario has an income that's 41% lower than the median income in the province. What's more, almost two-thirds (64%) of insolvent debtors have an after-tax household income in the bottom quartile of household earnings in Ontario.

Our study, called Joe Debtor, is conducted every two years to develop a profile of the average person who files for relief from debt. We then use this information to gain insight and knowledge as to why consumer insolvencies occur.

Our latest report, released in March 2017, reviewed the details of over 6,700 personal insolvencies in Ontario from January 1, 2015 to December 31, 2016. We compared the latest results with our previous Joe Debtor reports and concluded that there is a higher proportion of lower-income earners who are filing insolvency.

In addition, we found that it takes less debt to trigger insolvencies. The average insolvent debtor owed $52,634 in credit card and other unsecured debt, 7% less than two years earlier. Generally, someone files for bankruptcy when something catastrophic happens: they lose their job, become sick, or get a divorce. The result is less income available to repay existing debt. While this is still true, lower income levels can support less debt overall even when rates are low. Hence more low-income earners are declaring bankruptcy today than higher income earners.

Using Debt to Survive

To make ends meet, today's debtor uses debt to make up for low or stagnating income. He uses debt to pay for everyday living expenses. Once debt accumulates, a below-average income makes it almost impossible to manage debt repayment. So, an unfortunate cycle begins.

The issue isn't simply a lack of financial responsibility or discipline. Our average debtor is struggling with the rising cost of living and using credit to supplement a below-average income as:

* 41% of their income is spent on housing costs (that's more than the...