TORONTO – March 1, 2023 – Consumer insolvencies in Canada spiked in the first month of 2023, increasing 33.0% on a year-over-year basis. Compared to the previous month, consumer insolvency filings in January increased 14.2%, according to the latest statistics from the Office of the Superintendent of Bankruptcy.
“The impact of high inflation and numerous interest rate hikes are taking their toll on Canadians, particularly those who are deeply indebted and therefore more financially vulnerable,” says André Bolduc, Licensed Insolvency Trustee and Vice-Chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), the national voice on insolvency matters in Canada. “These individuals and families may turn to credit cards or lines of credit to bridge the gaps in their household budgets — to pay for groceries and essentials, for example. In the higher interest rate environment, it is harder to pay off these debts.”
When people get behind on payments, they often feel guilt and shame which prevents them from taking action, explains Bolduc. Many individuals hesitate to seek out professional help for their debt due to the stigma of bankruptcy. However, other debt-relief options may be available, including consumer proposals. This legally-binding process can only be administered by a federally-regulated Licensed Insolvency Trustee and allows to debtor to offer to pay creditors a percentage of what is owed to them.
In January, the majority of consumer insolvencies filed were proposals (78.7%). The share of proposals among consumer insolvency filings grew 5.6% from 73.1% in January 2022 to 78.7% in January 2023.
A total of 8,735 consumer insolvencies were filed in January of this year. While that volume is 33.0% higher than in January last year and 23.3% higher than in 2021, it is still 20.8% lower than in January 2020 before the onset of the pandemic. For the 12-month period ended January 31, 2023, insolvencies filed by consumers were 14.3% higher than the 12-month period ended January 31, 2022.
“For individuals concerned that they won’t be able to make upcoming payments on their debts or who are dealing with the stress of collection letters or calls from creditors, the best course of action is to consult with a Licensed Insolvency Trustee,” says Bolduc. “They are the only debt professionals who can offer legal protection from creditor actions and stop collection calls and wage garnishments. They are also required by law to offer a full assessment of an individual’s financial situation and explain in detail all of the debt-relief options, while providing accurate and unbiased advice. Be extremely cautious of unregulated debt advisors who may make promises of quick-fix solutions and charge unnecessary fees.”
Initial consultations with a Licensed Insolvency Trustee are typically free, providing individuals with the opportunity to receive expert advice with no commitment and no upfront fees.
Across the country, Ontario (3,063), Quebec (2,167) and Alberta (1,370) saw the largest volumes of consumer insolvencies in January. The provinces with the largest percentage increases in consumer insolvencies were Manitoba (66.9%), Nova Scotia (55.4%), and Alberta (41.7%). All provinces experienced a year-over-year increase in consumer insolvencies in January according to the latest statistics from the Office of the Superintendent of Bankruptcy.
Jump in business insolvencies as ‘tough start’ to 2023 leads to 55% increase in insolvencies year-over-year
Business insolvency filings in January surged, increasing 55.4% year-over-year. Compared to 2021, filings in January of this year were up 103.1%. Having surpassed pre-pandemic levels, January 2023 levels were 7.5% higher than in January 2020 before the onset of the pandemic.
“It has been a tough start to 2023 for Canadian businesses. Many are struggling to manage the impact of higher interest rates, inflation and far less pandemic-related support,” says Bolduc.
The increasing costs of doing business and subsequent dwindling margins, along with supply chain disruptions and financial vulnerabilities brought on during the pandemic have created substantial hurdles for many businesses.
A total of 331 businesses filed for insolvency in January of this year, dipping just slightly from the previous month (-2.4%). For the 12-month period ended January 31, 2023, the number of businesses that filed was 39.1% higher than the 12-month period ended January 31, 2022.
“Not factored into the insolvency numbers are the struggling small business owners who choose to walk away altogether, rather than take formal steps to wind down the business,” explains Bolduc.
He says walking away from the business eliminates the possibility of preserving the ongoing business operations, as the owner may be forgoing any guidance on restructuring and corporate workouts.
“The exact consequences of insolvency for you and your business depends on a number of factors, in particular the business structure, size and assets. This is why it is extremely important to get professional advice to review all of your options.”
Licensed Insolvency Trustees are uniquely qualified to navigate the intricacies of the business and can provide advice to help make the business viable again or offer options to formally wind down the business while at the same time ensuring a balance between the rights of the creditors and the debtors.
The majority of business insolvencies filed in January were bankruptcies (79.5%). The share of proposals among business insolvency filings grew 4.1%, from 16.4% in January 2022 to 20.5% in January 2023.
To find a government-regulated Licensed Insolvency Trustee visit: www.cairp.ca/find-a-lit.html