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rob carrick

A long-quiet gauge of household financial stress is flashing a bizarre warning signal about millennials.

Insolvency filings by consumers have started to edge higher after a long decline that began after the last recession. As has already been widely noted, the share of insolvencies accounted for by seniors is growing faster than any age group. What has not had much attention is the fact that the young-adult share is falling. Could this be a rare bit of good news for a cohort of the population that has been struggling financially?

Bankruptcy trustee Douglas Hoyes of Hoyes Michalos & Associates doesn't think so. First off, he sees changing patterns in bankruptcy as being driven by a demographic shift in which the percentage of seniors is growing at the expense of working age people. But he also has a theory that the plunging share of insolvencies accounted for by 25- to 29-year-olds is a sign of the troubles they're having in today's economy.

Industry Canada numbers show that 25- to 29-year-olds accounted for 7.1 per cent of insolvency filings last year, compared with 10.8 per cent back in 2005. An insolvency filing involves either bankruptcy or a consumer proposal, where someone offers to make partial repayments to creditors over time.

Mr. Hoyes said it's possible that fewer young adults are being overwhelmed by their debts because they're not in a position to borrow money in the first place. Instead of graduating into jobs with good incomes, some are going back to school to earn additional degrees or taking low-paying work. "You're not out buying a house, and if you're not buying a house, it means you're not getting a Leon's card [Leon's is a furniture retailer], you're not getting all that ancillary credit you need to buy all the stuff for your house."

Mr. Hoyes said insolvencies typically involve a "hiccup" in a person's life – a job loss, divorce, big medical bills and so on. As economic conditions worsen, people are less able to handle these upsets without resorting to bankruptcy or a consumer proposal.

For years, falling insolvency numbers have told a story of underlying stability in the economy. But total consumer insolvencies were up 2.4 per cent in April on a year-over-year basis, while the increase for the 12 months to April 30 was up 1 per cent. We may have reached an inflection point on bankruptcies in 2015. As recently as January, insolvencies were declining on both a one-month and 12-month basis.

As with housing prices, the national insolvency numbers reflect different situations across the country. Consumer insolvencies were down in Newfoundland and Labrador, Ontario and British Columbia over the 12 months to April 30, and up in other provinces. The insolvency trend that has received the most attention is the increasing numbers of seniors in debt trouble. People age 65 and older accounted for 10 per cent of insolvency filings last year, up from 6.2 per cent in 2005.

Demographics play a role here, but Mr. Hoyes said job losses are also a factor in rising insolvencies among seniors. "These people had great jobs in their 40s and 50s, and then they got downsized. In the last 10 or 15 years of their working life, they were working much lower-paying jobs." He also cited medical bills as an issue in senior insolvencies. While provincial health insurance programs cover hospital bills, other medical costs may have to be paid out of pocket.

Hoyes Michalos recently produced an analysis called Joe Debtor that looked at people who make insolvency filings. The firm says 86 per cent of debtors ages 18 to 29 are working, but their average income is the lowest of all groups at $1,996 on a net basis per month. The average unsecured debt for the group is $32,229, also lowest of all age groups.

Personal loans are the biggest debt component at $11,841 for young adults making insolvency filings, followed by credit cards at $9,858. Almost 30 per cent have student debt, with the average amount owed averaging $3,716.

Their problems in today's economy may have kept millennials from worse debt problems, Mr. Hoyes suggests. "If you haven't been able to get a decent job, then it's a lot more difficult to get into a huge pile of debt."

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