Businesswoman Calculating Expenses on Printed Receipts

Cracks may be appearing in Canadian household finances, with consumer insolvencies on the rise and debt relief arrangements also surging.

Policymakers at the Bank of Canada, as well as others, have long been concerned about household debt levels, and new data indicate that stress on household finances appears to be intensifying. According to the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), the latest data from the Office of the Superintendent of Bankruptcy (OSB) show that consumer insolvencies rose by 2.5% in 2018, and consumer proposals reached record levels, rising by 9% from the previous year.

“While a variety of economic factors affect the number of consumer insolvencies filed in a year, debtors are most sensitive to interest rate changes,” says Chantal Gingras, chair of the CAIRP. “There is a lag between interest rate changes and the impact on insolvency filings, so we are just starting to see the effect of the rate increases now. We expect that consumer insolvency filings will continue to rise for at least the next two years.”

She adds that official statistics don’t tell the full story. “There is a lot of ‘hidden’ insolvency out there,” she says. “Some may be technically insolvent, unable to pay their bills, but not yet seeking out debt relief options.”

The group also reports that record numbers of Canadian households are opting for debt relief arrangements known as consumer proposals. The number of proposals entered into in 2018 rose by 9.3% from the previous year to 70,175, which represents a record level. At the same time, bankruptcies were down 5%, it says.

“Consumer proposals are often more appealing because those who choose this option can keep some of their assets. They also receive all the same legal protections from creditors as they would during a bankruptcy; if creditors are garnisheeing wages or have filed lawsuits, these actions are also stopped,” says Gingras. “There is also less financial stigma associated with a proposal than with a bankruptcy.”

The CAIRP also notes that business insolvencies declined by 0.8% in 2018, with the energy and mining sectors leading the way. “After the initial wave of insolvencies in this sector, with oil prices having risen since their low in 2016, we are now seeing a significant slowdown in the number of filings,” says David Lewis, CAIRP board member based in Alberta.