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Unable To Make Bill Payments – Rising Consumer Debts & Insolvencies In Canada

What is Contributing to Rising Consumer Debt and Insolvencies in Canada?

When it comes to what is causing the rise in consumer debt and insolvencies, there is no single answer. Instead, there are several contributors working in concert causing some to be unable to pay bills, including:

Sky-high inflation

Inflation is when the price of goods and services rises across the economy. Everything gets more expensive. When you have to spend more money on your mortgage, gas, and food, you have less money to spend on other things – including bill payments.

In June, inflation reached a nearly forty-year high peaking at 8.1%. This is well above the Bank of Canada’s target rate of 2%.

Rising interest rates

To try and temper rising inflation, the Bank of Canada has continued to increase interest rates. Since March 2022, rates have gone up seven times. Rising rates make it more expensive for Canadians to borrow money and to service their debts.

With rising rates, there’s been a drop in the number of Canadians looking for a mortgage. Since last year, mortgage volumes have dropped by nearly 23%.

Interest rates are also on the minds of current homeowners. Those getting close to their renewal date can expect to see a rise in their monthly mortgage payments as interest rates continue to go up.

COVID-19 pandemic

Bankruptcies were down throughout the pandemic, thanks to government subsidies. But now that those supports are gone, insolvency filings are on the rise.

The pandemic also contributed to inflation. During pandemic lockdowns, people had to change the way they shopped. Instead of heading to the store, consumer purchasing moved online. This put a strain on the global supply chain, causing the prices of many internationally traded goods to increase.

Coming out of the pandemic, there was also an increase in demand for services. Canadians wanted to get back to their regular pre-pandemic activities, including travelling. This caused an increase in service inflation. So, while the pandemic has been declared over, the effects continue to linger.

Global developments

Canadians are also affected by what is going on in the rest of the world, such as the war in Ukraine. On an individual level, the war is contributing to inflation. Canadians feel the increase in the price of food, metal, and energy. However, on a national level, the war in Ukraine is providing a boost to Canadian resource producers.

Things Might Get Worse Before They Get Better

Financially, it’s a hard time for many Canadians. A combination of inflation, rising interest rates, the lingering effects of the pandemic, and world events are creating an ideal breeding ground for a recession.

Unfortunately, the message from the Bank of Canada is that things might get worse in the short term before they get better. But they will get better. The Bank of Canada governor Tiff Macklem predicts that the Canadian economy should be in a better place by the middle of 2023.

We Can Help

If you can no longer make your bill payments and you don’t know what to do, we can help. We will work with you to determine the best path forward, whether it’s a Consumer Proposal, declaring Bankruptcy, or something else. Even if you aren’t insolvent, but you’re concerned with the state of your finances, reach out to a Licensed Insolvency Trustee. An LIT can review your financial situation and identify ways to make improvements. The earlier you contact an LIT for help, the better.

John Adamson, Licensed Insolvency Trustee Ontario

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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