An average 372 Canadian individuals filed for insolvency every day in Q1
Millions of Canadians are struggling with unsustainable debt that may only see limited relief from Bank of Canada interest rate cuts.
Official stats from the Office of the Superintendent of Bankruptcy highlights the debt burden faced by both individuals and businesses in the first three months of 2024 - 33,885 consumer insolvencies or an average of 372 every day.
The first quarter data has been analyzed by the Canadian Association of Insolvency and Restructuring Professionals (CAIRP). André Bolduc, Licensed Insolvency Trustee and chair of the association says the 6.5% quarter-over-quarter and 14% year-over-year rise in the quarterly consumer insolvencies total is a return to pre-pandemic levels and warns that many more people risk insolvency.
"A perfect storm of economic challenges is brewing, with high mortgage renewal rates, soaring rental prices, and elevated costs of everyday necessities,” he said. “The high cost of servicing debts is also compounding the financial strain for many Canadians and leaving them grappling with insurmountable debt burdens."
When looking at stats for the 12 months ended March 31, 2024, there was a 19.3% rise in consumer insolvencies compared to the 12 months ended March 31, 2023.
“Indebted Canadians are bearing the financial burden of higher costs, and additional financial strain can be triggered by various factors, including relationship breakdowns, unemployment or underemployment, and unexpected costs. These often serve as a tipping point for insolvency, whether it is navigating legal fees and spousal support after a divorce, coping with the challenges of reduced working hours, or dealing with the financial fallout of unexpected car repairs, medical expenses, or unpaid taxes,” explained Bolduc.
But even the potential of interest rate cuts beginning as soon as next month, may not those who are already carrying a significant amount of debt and a mortgage that is locked in at higher rates.
Business struggles
The challenge for businesses is also clear from the OBS figures with an 87.2% surge in insolvencies year-over-year, the highest rise in 37 years of data.
Quarter-over-quarter insolvency filings by businesses were up 31.7% to 2,002. This is almost 127% higher than in the first quarter of 2020, as the pandemic was beginning. For the 12-month period ended March 31, 2024, insolvencies filed by businesses were 56.7% higher than the 12-month period ended March 31, 2023.
Accommodation and food services (+173), transportation and warehousing (+124), and construction (+100) were the three industries with the largest increases in insolvencies in the first quarter of 2024 compared to the same period of 2023.
“We are seeing signs of a significant rise in distress among Canadian businesses. Many are still shouldering the burden of the pandemic, on top of high input and labour costs, declining consumer spending, and higher debt-carrying costs,” said Bolduc. “Now that the CEBA loan deadline has passed, businesses have the added financial burden of monthly loan repayments and their accompanying interest payments. These new debt obligations may make the future more difficult to navigate.”
The burden of CEBA loan payments has been consistently highlighted by the Canadian Federation of Independent Business which recently revealed that 20,000 small businesses took on new debt to manage this borrowing.
Bolduc says small and medium sized businesses often lack the ability to restructure that larger entities frequently do.
“Some business owners may opt to cease operations altogether rather than pursue formal insolvency proceedings, but they should speak with a Licensed Insolvency Trustee before making decisions to shut their doors for good,” he said. “Licensed Insolvency Trustees can provide customized advice on restructuring options and corporate workouts that can make the business viable again, or they can provide guidance on options to formally wind down the business, ensuring there is a balance between the debtor’s and creditor’s rights, and protecting employees who may be owed wages. For many small businesses, the window for restructuring is narrower, which underscores the importance of seeking out professional guidance as soon as possible.”
