Personal Finance

Personal Finance

Canadian Consumer Insolvencies Dropped 38% in October

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As the Canadian economy continues to rebuild amid the second wave of the pandemic, new filing data reveals that consumers are still struggling with insolvency, though there has been improvement from previous months.

According to new data released by the Office of Superintendent of Bankruptcy (OSB), consumer insolvency numbers remained sharply lower in October compared to last year, though they are still up slightly from the month prior.

The number of consumer insolvencies in October was 38.4% lower than in October of last year, but still up 6.2% compared to September.

“We are starting to see modest increases month-over-month, but overall government stimulus coupled with debt forbearance have depressed filings thus far into the COVID pandemic,” says Mark Rosen, Chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), the national voice on insolvency matters in Canada.

READ: Canadian Consumer Insolvencies Drop a Record 42.3% in Q2-2020

Rosen points to the fact that delinquency rates in Canada still remain low. In the third quarter, Canada’s overall non-mortgage consumer-level delinquency rate fell 48 basis points compared to the prior year, according to TransUnion. During the same period, credit card balances declined by 11.6%, and average non-mortgage consumer debt declined (-4.2%) as Canadians decreased spending and increased payment activity.

“A latent benefit of the stay-at-home measures is that personal finances are also on lockdown. With the removal of opportunities to spend, Canadians are forced savers right now, decreasing their socializing and travel costs,” says Rosen. “For those whose budgets have been hit hardest by the pandemic, payment deferrals and government support may not have prevented them from taking on additional debt to make ends meet.”

Rosen also noted that with potentially less flexibility among lenders during the second wave, more income or job loss on the horizon, and government aid tapering off, he expects to see the insolvency rate increase across the country.

However, he noted that some areas will be hit harder and faster than others.

Across Canada, British Columbia saw the largest increase in consumer insolvencies in October, up 14.1% compared to September. Alberta (9.0%), Quebec (8.5%), Ontario (6.5%), Saskatchewan (5.9%), and Nova Scotia (2.5%) also experienced an increase in consumer insolvencies.

Meanwhile, there were decreases in Manitoba (-11.3%), Prince Edward Island (-10.3%), New Brunswick (-8.9%), and Newfoundland and Labrador (-5.8%) compared to the previous month.

Throughout the pandemic, indebted Canadians deferred payments to keep up with bills, loan payments, and mortgages due to the impact of COVID-19.

André Bolduc, executive board member of CAIRP and Licensed Insolvency Trustee, says that while this may have offered temporary relief on current cash flow needs, it has built up payments that will need to be made at some point in the future.

“The accumulation of arrears – these additional lockdown debts – can drag lower-income families under, particularly if creditors start trying to catch them up on payments. For example, when an individual gets a three-month minimum payment deferral on their credit card, interest continues to accrue. When payments restart, the minimum payment will be higher due to the additional accumulated interest.”

Over 3 million Canadians have taken advantage of deferral programs since the onset of the pandemic, according to third-quarter data from Equifax and TransUnion.

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