Consumer insolvencies hit 4-year high in Canada as interest rates weigh on households
On average, 386 Canadians filed for insolvency every day in the second quarter
Canadian insolvencies increased in the second quarter of the year, hitting a four-year high, as higher interest rates and inflation continue to weigh on Canadians.
The latest data from Canada's Office of the Superintendent of Bankruptcy (OSB) show that total insolvencies – which include both business and consumer bankruptcies and proposals – were up 13.3 per cent in the second quarter of 2024, compared to the same time last year. Consumer insolvencies jumped 12.3 per cent, with 35,082 filing for insolvency. Compared to the first quarter of the year, consumer filings were up 3.5 per cent. That means that on average, 386 Canadians were filing for insolvency each day in the second quarter.
“Consumer insolvencies have reached their highest level in over four years, underscoring the significant headwinds many Canadians are still facing,” André Bolduc, a licensed insolvency trustee and chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), said in a statement.
"When individuals are forced to allocate more of their paycheque to groceries and other basic necessities, less remains for other obligations such as credit card bills or debt servicing."
CAIRP notes that the last time insolvencies surpassed 35,000 was in the fourth quarter of 2019, before the COVID-19 pandemic struck.
Business insolvencies shot up 41.1 per cent annually in the quarter, with 1,541 filing for insolvency. Compared to the second quarter of 2019, business insolvencies are up 58.2 per cent. However, on a quarterly basis, insolvencies were down 23.1 per cent, which Bolduc says may suggest a potential stabilization.
"This drop might also indicate cautious optimism as businesses adapt to shifting economic conditions,” Bolduc said.
“Yet, despite the recent drop, insolvency levels remain high and could rise again due to ongoing volatility. Small and medium-sized businesses tend to be particularly vulnerable to changes in consumer spending, so if price-sensitive consumers pull back on spending, these businesses would feel the pain right away.”
Bolduc says that while many economic factors influence insolvency statistics, debtors are most sensitive to interest rate changes. While the Bank of Canada cut its interest rate in July for the second time in a row, Bolduc notes that it takes time before rate changes will be reflected in insolvency filings.
"Therefore, we expect insolvency activity to remain elevated as the recent rate cuts take time to positively affect Canadians’ wallets and provide relief for household budgets."
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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