Consumer and business insolvencies rise sharply in Q2, reflecting economic pressures and debt struggles
Insolvencies for both Canadian consumers and businesses rose during the second quarter, according to BNN Bloomberg.
The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) reported that 35,082 Canadian consumers filed for insolvency, an increase of 12.4 percent from the previous year.
Consumer insolvencies hit a four-year high as households struggled with high living costs, debt servicing costs, and persistent inflation.
André Bolduc, a licensed insolvency trustee and chair of CAIRP, stated, “Consumer insolvencies have reached their highest level in over four years, underscoring the significant headwinds many Canadians are still facing.”
Bolduc highlighted that when individuals allocate more income to basic necessities, less is available for credit card bills or debt servicing.
This situation often leads to missed debt repayments, using credit for daily expenses, receiving collection calls, and experiencing financial stress or sleeplessness, all signs indicating the need for professional debt help.
The last time insolvency filings exceeded 35,000 in a quarter was the fourth quarter of 2019. Bolduc noted that while various economic factors influence insolvency numbers, debtors are most sensitive to interest rate changes.
Despite declining interest rates, there is a lag before these changes impact insolvency filings. Consequently, CAIRP expects insolvency activity to remain high as recent rate cuts take time to benefit Canadians' finances and relieve household budgets.
In the second quarter, 1,541 businesses filed for insolvency, marking a 41.4 percent increase from the previous year but a 23.1 percent decline from the previous quarter.
Bolduc commented, “The decline in business insolvencies from last quarter suggests a potential stabilization, perhaps due to businesses managing their finances more conservatively to meet pandemic support repayment obligations. This drop might also indicate cautious optimism as businesses adapt to shifting economic conditions.”
