stressed young couple worries about their finances
ocusfoucus/123RF

Amid ongoing government support efforts, insolvencies continued to decline in May, according to the latest data from the Office of the Superintendent of Bankruptcy Canada (OSB).

The agency reported that total insolvencies dropped by 8.2% in May from the previous month, and monthly insolvencies were down by more than 50% year over year.

“Debt payment deferrals and reduced operating capacity of Canadian courts gave debtors a temporary reprieve,” noted Scotia Economics in a research note.

The number of bankruptcies declined by 3.9% month over month, and the volume of consumer proposals was down by 10.3%.

Compared with May 2019, consumer insolvencies plunged by 50.6%, and business insolvencies dropped by 38.9%, the OSB said.

With the decline in insolvencies during the Covid-19 pandemic, the total number of insolvencies for the 12 months ended May 31 was down by 2% from the prior 12-month period.

However, Scotia said that consumer insolvencies are expected to ramp up towards the end of the year.

“As Canadian households continue to experience high levels of unemployment this data remains out of sync with the reality of the financial struggle many are likely facing,” Scotia said in its report.

“Through this period, many Canadian households have been able to defer payments on mortgages as well as other loans,” and households have been able to rely on the Canadian Emergency Response Benefit to support essential spending, the report said.

“Instead of filling for insolvency, many households may be adopting a ‘wait and see’ mindset as rebounding consumer confidence indicates rising hopes for the future,” Scotia said. “However, if the labour market does not recover by the time support measures expire, insolvencies will likely rise.”

Additionally, as businesses face continued restrictions that limit their capacity and hamper revenues, “business bankruptcy filings are expected to rise if revenues do not recover,” Scotia said.