They’re back …
Perennial worries of Canadians before the pandemic, household debt and its worst outcome insolvency, appear to be on the rise again after a hiatus during COVID-19’s initial shock.
Data from the Office of the Superintendent of Bankruptcy Wednesday showed that after plummeting 38.8% in April and 8.8% in May, consumer insolvencies have begun to creep up again.
Insolvencies climbed 3.7% in July from the month before after a 3.9% increase in June, potentially signaling the beginning of an upward trend, says the Canadian Association of Insolvency and Restructuring Professionals.
“Prior to the widespread income shock and economic uncertainty brought on by COVID, consumer insolvencies were on the rise in Canada. The latest stats may point to a return to that trend,” said CAIRP chair Mark Rosen.
Consumer insolvencies for the 12 months ending July are still down 10.6% from last year as COVID income aid programs keep many households afloat. But pressure is again ramping up.
With the Canada Emergency Response Benefit ending soon, many people will be moving to employment insurance, which for some will pay less.
“There is a large proportion of Canadians who are already technically insolvent; they are unable to pay their bills and debt repayment obligations each month. Most who are in this position are using COVID-related financial support to make ends meet. But we know that many of these individuals will need debt relief when the temporary support ends,” said CAIRP executive board member André Bolduc.
The Atlantic provinces are already showing that stress with the largest consumer insolvency increases in the country. In July, insolvencies in PEI spiked 41.7% from the month before. In Newfoundland and Labrador they were up 18.1%, Nova Scotia, 11.2% and New Brunswick 6.8%.
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But it was a trend seen across most of Canada. Insolvencies were up 4.7% in Quebec and British Columbia, 4.5% in Ontario and 1.7% in Alberta.
The only provinces to buck the trend were Manitoba where insolvencies fell 20.7% and Saskatchewan which saw a 8.6% drop.
“At this point, it is impossible to understand exactly how much the pandemic will impact the number of insolvency filings, but all signs point to a tough road ahead particularly as financial support decreases or runs out entirely,” said Rosen.
Meanwhile, our debt is rising. A report by Equifax Canada today showed that consumer debt was up 2.8% in the second quarter from the year before, reaching $1.9 trillion.
Rising mortgage debt was the biggest driver as record low rates spurred Canadians to keep buying houses in the pandemic. Others are taking longer to pay off their mortgages because of deferred payments.
Equifax says about three million Canadians have taken some sort of COVID-related payment holiday since February, though deferrals have been dropping in recent weeks. In the 35 to 44-year-old age group 15.1% took a payment deferral; among seniors it was 5.7%.
Non-mortgage debt — credit cards, auto loans and lines of credit — though still down from last year because of the COVID lockdown, is showing “the greenshoots of a bounceback with credit card spending starting to rise in June,” said Rebecca Oakes of Equifax.
“Card spending for those not using a payment deferral on their credit card were effectively back to pre-COVID levels by the end of the quarter,” she said.
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