Insolvency filings in Canada nearing pre-pandemic levels

The number of bankruptcy filings in Canada is approaching pre-pandemic levels, according to figures from the Federal Office for Bankruptcy Supervision.

Bankruptcy rates fell early in the COVID-19 pandemic, but Michelle Statz, a Saskatchewan-based board member at Bromwich+Smith, says November 2022 saw the highest number of bankruptcies since March 2020, the month in which COVID-19 hit lockdowns and the announcement of the first Canada Emergency Response Benefit (CERB).

Statz says it’s the first time bankruptcy numbers have approached pre-pandemic levels, adding that given high inflation, rising interest rates and the end of government benefits like CERB, it’s not entirely unexpected.

“It’s not exactly surprising for us in this industry,” she said, pointing to rising household debt. “We expected something like that.”

Bankruptcy bureau figures show there were 9,784 bankruptcies across Canada in November, up 17.5 percent from November 2021.

Provinces suffering from the crisis include British Columbia and Ontario, which saw bankruptcies rise 32.5 percent and 23.9 percent, respectively, year-over-year.

“I think there’s a common theme across the country with the cost of living and real estate values,” Statz said. “We know the more expensive places to live in Canada are BC and Ontario, so that’s where we’re seeing numbers increasing.”

Insolvencies can take the form of bankruptcy, where a borrower’s debts are paid off, but at the cost of losing their assets – and also making it nearly impossible to borrow in the future. Or they can be an offer to creditors where the borrower agrees to pay off a portion of their debt with the creditor’s consent.

Impact of the Pandemic The COVID-19 pandemic has changed the financial landscape of many Canadians, Statz said, as they face the prospect of unemployment, career changes and health challenges. Additionally, support programs may no longer exist during the pandemic.

According to Statz, the increase in bankruptcy filings was gradual.

“It doesn’t happen overnight in this industry,” she says. “It usually takes some time for people to get to the point where they feel like they need to propose.”

More financial headwinds could be in store.

Tony Stillo, Director of Canada Economics at Oxford Economics, wrote in a note to clients that Canada is likely to have entered a moderate recession that will last for much of 2023.

“Pervasive household debt and housing imbalances will combine with pandemic and geopolitical forces to make Canada’s recession deeper than most advanced economies,” Stillo wrote.

Statz says people who are struggling financially are best served by seeking help sooner rather than later, no matter how difficult that may be.

“People don’t necessarily like to talk about debt,” she said. “There’s still that stigma out there… You don’t want to put it aside. You don’t want to forget it. They want to deal with it directly.”