Business Bankruptcy in Canada is primarily governed by the Bankruptcy and Insolvency Act (BIA), a…
Each year, thousands of Canadians are faced with consumer insolvency. It’s not a position that anyone wants to find themselves in, yet it happens. If you are contemplating a Consumer Proposal or Bankruptcy filing, know that you are not alone. In fact, you’re in good company.
While the pandemic has helped some Canadians to save more money and reduce their debt, this is not the case for everyone. Many Canadians are struggling, and a slight increase in interest rates or a decrease in financial support could mean financial ruin.
This article will provide an overview of the current trends in Canadian consumer insolvency and, more specifically, Ontario Bankruptcy and Consumer Proposal trends. What is happening right now, how the pandemic affected consumer insolvency, and what can be expected in the near future?
Consumer Insolvency Trends
In 2020 – 99,244 insolvencies (both consumer and business) were filed with the Office of the Superintendent of Bankruptcy (OSB). According to the Government of Canada, this represents a 29.5% decrease from 2019 – the largest annual decrease ever recorded and the lowest number of filings since 2002.
Consumer insolvencies decreased from 137,178 to 96,458 with Consumer Proposals accounting for the majority of insolvencies and growing by 5.6% from 2019 to 2020.
Ontario followed a similar trend. In 2019, there were 45,754 total insolvencies with consumer insolvencies accounting for 44,852 of the total. The number of consumer insolvencies fell to 33,992 in 2020. Ontarians in the 30 to 44 age ranges accounted for the highest distribution of insolvencies, and men accounted for more insolvencies than women, but just barely (men 50.4%, women 49.6%).
The most recent Government of Canada statistics show a similar trend in consumer insolvencies for 2021, as numbers continue to drop across Canada. From 2020 to 2020 there was an annual decrease of 15.8% and a 17.4% decrease in Ontario.
But what does this mean? In the midst of a global pandemic, with so many Canadians struggling to pay their bills, why is there a decrease in the number of Ontario Bankruptcies and Consumer Proposals?
COVID-19 and Consumer Insolvency
The outbreak of the global COVID-19 pandemic in March of 2020 resulted in some interesting financial trends. Past economic recessions typically lead to an increase in annual insolvency rates, as you might expect.
For example, the 2008 to 2009 recession led to a 30.4% increase in consumer insolvencies. In stark contrast, the 2020 COVID-19 recession brought a 24% decrease in insolvencies. So, how can this be explained?
It likely comes down to a combination of federal government support (think CERB), creditor deferral programs, and low-interest rates. This was the recipe that helped many Canadians stay financially afloat and avoid consumer insolvency.
In fact, Statistics Canada reported that disposable income increased for many Canadians, especially among the lowest-income households who saw a 36.8% boost in disposable income. The youngest households also saw some positive trends with a 9.8% gain in their net worth.
When you combine government support with an overall decrease in consumer spending due to extended lockdowns, the low number of consumer insolvency filings begins to make sense. At this point, you might be wondering, is this trend here to stay?
The Financial Landscape is Changing
While the global pandemic has not gone away, the financial landscape has changed. Government funding has subsided and many creditor deferral programs have ended.
Extensive lockdowns are over (at least for now) and people are spending more money. The pandemic is still creating economic challenges but now some programs are winding down or are no longer in place. As a result, it’s likely insolvencies will increase over time.
Before the pandemic began, Ontario consumer and business insolvencies were on the rise. Between 2018 and 2019 there was a 15% rise in insolvencies which reached a seven-year high in 2019. This increase was largely due to rising interest rates and large amounts of household debt.
In 2019, household debt reached 8.3% of disposable income, the highest it had been since 2008. As people start to get back to some sort of “normal” – what is to come of consumer insolvency rates?
What About Increasing Interest Rates?
In answering this question, an important variable to consider is interest rates. In response to the economic instability caused by the pandemic, the Bank of Canada lowered interest rates in March 2020. The goal was to help reduce the burden of consumer debt payments. While this did help to reduce debt payments, the low-interest rates also encouraged more people, especially lower-income and younger households, to acquire more mortgage debt.
While interest rates have stayed low since the beginning of the pandemic, some economists anticipate the Bank of Canada could raise rates as early as the end of June 2022. Rising interest rates could bring financial stress to Canadians with variable mortgages or those who need to renegotiate.
Now is the Time to Address Your Debt
Even though consumer insolvency rates continue to stay low, as government programs wrap up and interest rates increase, there is little doubt that Ontario Bankruptcy and Consumer Proposal rates will be on the rise.
If you are concerned with your debt, or you worry about how you will pay your mortgage when rates go up, then now is the time to reach out to a Licensed Insolvency Trustee (LIT). Don’t wait until you are losing sleep and drowning in debt. Plan to beat the future rush of people who are looking for consumer insolvency assistance.
An LIT can look at your current situation and suggest debt management tools to help you deal with your debt and get back on track financially. Contact a LIT at Adamson and Associates for a free consultation. Give us a call at 519-310-JOHN (5646) or reach out online.