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CAIRP: Q2 2020 Canadian Insolvency Statistics

Consumer insolvencies fell a record 42.3% in the second quarter
posted on Aug 27, 2020

TORONTO – August 5, 2020 – New filing data from the Office of the Superintendent of Bankruptcy (OSB) released today shows that there was a record decline in the number of consumer insolvencies filed in the second quarter. Nationwide, consumer insolvencies were down 42.3 per cent compared to the first quarter of this year and 45.4 per cent compared to the same period last year.

“The bankruptcy statistics have yet to reflect the pandemic-related financial distress of many Canadian households,” says Mark Rosen, Chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP). “Government stimulus has put cash into unemployed people’s hands every month allowing them to cover basic living expenses, pay rent and make their minimum payments.”

Canadians went into the pandemic with record household debt, many already living paycheck to paycheck. Then many experienced sudden income shock – the most common cause of insolvency – as job and wage losses occurred without warning. But instead of a deluge of personal insolvency filings, from April through June there was a sharp drop even as unemployment reached its highest level in forty years.

“Although COVID-19 is likely to create more financial distress for households, there is often a long delay between when people start to recognize the severity of their debt problems and when they take action. Many debtors struggle needlessly for years to pay their debt and, only after prolonged financial hardship, do they seek relief,” says Rosen.

The time period before a person files a consumer insolvency has been referred to as the ‘financial sweatbox’. During this time they may be subject to harassment by creditors, aggressive calls from debt collection agencies and wage garnishment.

André Bolduc, executive board member of CAIRP and Licensed Insolvency Trustee, says that Canadians who are struggling in a cycle of debt are generally better off seeking guidance right away. That’s because the insolvency process automatically protects debtors from creditors’ collection efforts and provides them a systematic way of working out their repayment plans with expert guidance. 

“If you are receiving phone calls from creditors or are worried about a garnishment, it is a sign you need expert advice right away,” says Bolduc. 

Licensed Insolvency Trustees communicate directly with creditors on the debtor’s behalf once an insolvency is filed or a consumer proposal is submitted, providing protection from collections agencies and wage garnishments. With extensive knowledge of governing legislation, they are the only licensed professionals in Canada who can facilitate both bankruptcies and consumer proposals.

“Those in severe financial distress fear they will lose everything by filing an insolvency. In reality, by seeking professional advice, they may be able to save important assets like their house or car,” he says.

In an effort to maintain social distancing measures while continuing to support those in need of expert advice, many Licensed Insolvency Trustees across the country are providing free contactless consultations virtually or by phone.

Canadian Business Insolvencies Down 31.3% in Second Quarter 

According to the OSB data, business insolvencies also experienced a record decline in the second quarter. Between April and June, the number of Canadian companies that filed an insolvency decreased by 31.3 per cent compared to the first quarter and by 37.7 per cent compared to the same quarter last year.  

“Many businesses have benefitted from government aid programs which have allowed them to avoid insolvency. But many others will choose to close their doors without filing simply because they may not understand their options. For others, lending institutions may determine that formal proceedings are not to their advantage.  By reviewing the business’ financial situation, we help determine the best course of action,” says Mark Rosen.

Licensed Insolvency Trustees take a customized approach to review the business’ financial situation and help business owners understand their rights. The options include bankruptcy or reorganizing their financial liabilities, either through a formal process or by informally coordinating directly with the creditors. If a business is winding down, restructuring can help avoid some of the longer-term fallout from filing a bankruptcy.