As debt loads grow, Canadians are increasingly left with less free cash at the end of each month…as little as $200 in most cases.
That’s the startling finding from MNP’s latest Consumer Debt Index. The average amount of disposable income left over at the end of every month has fallen to $557 as of September, down significantly from $762 just a year earlier.
Nearly half (48%) say they are left with less than $200, and 30% say they don’t make enough money to cover their monthly expenses—i.e. they’re underwater and sinking further.
“Our findings may point to a shift among some Canadians from debt apathy to debt hopelessness,” says Grant Bazian, President of MNP Ltd. “Feelings of hopelessness can make people feel like giving up on ever paying down their debt or, worse, ignoring the debt as it piles up higher.”
Some additional findings:
- Only 27% are confident in their ability to cope with a life-changing event or illness
- Half of Canadians are optimistic that their financial situation will be better five years from now
- Only half are confident they won’t have any debt in retirement
- One third (34%) are concerned rising interest rates could push them into bankruptcy.
And these are among the economic fundamentals supporting one of the most expensive housing markets in the world.
Insolvencies on the Rise
Recent data from the Office of the Superintendent of Financial Institutions shows the number of insolvencies in Canada rose 8.9% in November to 135,983 compared to last year. Consumer bankruptcies were down 1.9%, while consumer proposals (the new debt fixers of choice) were up a staggering 17.5%.
JARGON BUSTER: An insolvency is a situation where a borrower is unable to pay their debt obligations when they are due, or where their liabilities exceed the value of their assets. This can be remedied by undertaking a consumer proposal (which typically results in debtors striking a deal with creditors to pay a portion of what they owe over a period of up to five years) or bankruptcy (where a debtor surrenders their assets, which are used to pay creditors). Both consumer proposals and bankruptcies can only be filed through a licensed insolvency trustee.
"Most of the people I deal with don't want to go bankrupt, they want to at least pay some of their bills, they want to at least make some kind of arrangement with their creditors," Andre Boldu, a senior vice-president at BDO Canada, told the Globe and Mail.
Equifax released similar statistics in December. They showed the number of Canadians who were 90+ days behind on their non-mortgage debt payments rose 9.7% year-over-year to 1.15% in the third quarter.
There was even an increase in those struggling to keep up with their mortgage payments. While still low, mortgage delinquencies were up by 6.7% to 0.18%.
Mortgage Implications
Consumer insolvencies can sometimes result in homeowners being forced to sell their house—but not always.
In the event of a bankruptcy, the debtor must surrender their assets, which may then be sold. The proceeds are used to pay the creditors.
While certain possessions can be kept, such as a vehicle, personal possessions, etc., homeowners could face the prospect of having to sell their home.
If the debtor’s home is worth materially more than the mortgage, they must usually pay the bankruptcy trustee the equivalent of the surplus equity in the home, or sell the house outright.
In the case of consumer proposals, however, the terms are generally more flexible and make it easier for the debtor to retain their home. That’s important with home values rising so much, and it’s one reason why consumer proposals have gained popularity.
