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An insolvency crisis may be on its way. Is Canada prepared?

By Reg Rocha

Like so many of you, I follow the news and trends related to COVID-19 and the financial health of Canadians very closely. Recently, I’ve found three loosely related government reports that when combined paint a concerning picture of what might be coming our way as a country: 

  • In December of 2019, the Office of the Superintendent of Bankruptcy reported 140 thousand insolvency filings. This represents 4.64 filings per 1000 adults. In 2009, during the peak of the last recession, the OSB registered a total of 158 thousand filings or 5.83 filings per 1000 adults. What these numbers tell us is that there was not a sufficiently comfortable distance between where we were at during the peak of the last financial crisis and where we were just immediately prior to the commencement of the global pandemic.
  • The Bank of Canada has been warning for years about the potential threat of high household debts to Canada’s economic and financial stability.  Again in December 2019, Stats Can numbers revealed that the household debt load is still rising. The ratio of credit market debt to disposable income rose to 175.9 per cent in the third quarter from 175.4 per cent in the second quarter of last year. If you want a picture of how Canadians were feeling about their debt levels at that time, and their confidence in their ability to face future financial shocks, check out the Ipsos Reid poll data released in January of this year.
  • Finally, earlier this week, the Financial Consumer Agency of Canada reported on its monitoring of the relief measures that financial institutions have been providing to consumers impacted by the COVID-19 pandemic. One of the key measures creditors offered Canadians to support us through this pandemic is the ability to defer credit payments. Since April 2020, FCAC has been tracking the total number of deferrals granted on products like Mortgages, HELOCS, Loans, Lines of Credit, Credit Cards and Auto Loans. Taken together, 1,949,317 applications for deferral have been accepted, with the highest number of deferrals being on mortgages and credit cards.  To me, these numbers are cause for concern. We may not know when right now, but we know for certain that payment for these deferred debts is still coming and for many of these deferrals, interest continues to accrue. 

These three indicators alone convince me that COVID-19 virus may not be the only grave threat to our individual and collective wellbeing. All the conditions for a potential consumer financial crisis are there. I believe we need a national plan to mitigate — And we need it very soon. 

In the meantime, what can Canadians do to better prepare for potential future shocks? Our advice remains the same: do your best to get control of your spending now, make a budget, and review your debt options. And remember, 4 Pillars is here to help. 

If you think you’re facing insolvency, please reach out – we have offices across Canada. You are not alone.