Personal insolvencies are at a four-year high in Canada as consumers struggle with lingering inflation, high interest rates and debt they can no longer handle.
The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) report for the second quarter shows a rise of 12.4 per cent in insolvencies compared to the year prior.
And the numbers for business are even worse with insolvencies spiking 41.4 per cent year-over-year.
According to the Office of the Superintendent of Bankruptcy (OSB) there were 35,082 consumer insolvencies during the quarter which include consumer proposals and bankruptcy filings.
The last time insolvencies were this high was before the pandemic. The report comes as Canadian households struggle to make ends meet amid higher living expenses.
“You’ve got all these chunks coming out of your budget,” said André Bolduc, a licenced insolvency trustee and chair of the CAIRP.
“Something’s got to give. So people are using more credit, balances are going up, they’re making more minimum payments.”
Worse, many households are living paycheque-to-paycheque and have no savings, Bolduc says.
Unemployment is climbing, debt is “through the roof,” and overall, people are less optimistic about the future, said Doug Hoyes, licenced insolvency trustee and co-founder of Hoyes, Michalos & Associates Inc.
Bankruptcies on the rise
Around 386 Canadians filed for bankruptcy each day in the second quarter.
“Filing a consumer proposal or bankruptcy can be viable options for deeply indebted Canadians, but these decisions should not be taken lightly,” said Bolduc in the release.
He advises Canadians to consult a licenced insolvency trustee before declaring bankruptcy, because the trustee can help an individual file a consumer proposal, a ‘deal’ with their creditors.
The trustees can offer legal protection from creditors, as well as stop collection calls and wage garnishments.
“The good thing is: we have a very good system in Canada to help out households and give them a fresh start when they get overburdened with debt,” said Bolduc.
Ontario is the province which saw the greatest year-over-year bankruptcy increase with 13,309 filings, a rise of 18.3 per cent.
The present difficulties are a byproduct of the direct payments given to consumers by the government during the pandemic, said Hoyes. The policy move is now coming back to haunt Canadians, and is stoking inflation.
Though the payments kept Canadians afloat in the short term, several years later, groceries and other expenses are a lot higher, said Hoyes.
“We’re in that transitional period now where the time lag is starting to catch up to us and we’re starting to see the numbers,” he added.
Business insolvencies have been largely rising for the past two years, hitting 1,541 in the recent quarter.
Looking at the data on a quarterly basis, however, things seem more promising with insolvencies dropping 23.1 per cent between Q1 and Q2, which Bolduc attributed to a “potential stabilization.”
This might be because businesses are managing their finances more tightly in order to pay back their pandemic support loans, said Bolduc. It might also indicate that businesses are cautiously optimistic about the changing economic conditions.
Make no mistake, though, Bolduc said, the overall numbers are still concerning. “Insolvency levels remain high and could rise again due to ongoing volatility.”
Industries hurting most are construction, transportation and warehousing, as well as administrative and support and waste management.
“Small and medium-sized businesses tend to be particularly vulnerable to changes in consumer spending,” said Bolduc.
The recent rate cuts will take time to reflect on Canadians’ wallets, he added. Until then, insolvencies will stay high.
“As individual consumers, it’s incumbent on all of us to really look at our budgets and ensure we live within our means,” he advised.
“Then you have to take it a step further and live below your means, meaning that you’re spending less than what’s coming in, because that’s the only way you’ll save.”
