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Canadian consumer insolvencies rose a further 22%, still below 2019 levels

Canadian consumer insolvencies rose a further 22%, still below 2019 levels

Canadian households are facing a triple whammy: rising rates, rising inflation and a lot of debt. Office of the Superintendent of Bankruptcy of Canada (OSB) data show that insolvencies are on the rise for September. However, despite the significant increase, insolvency filings have not yet reached 2019 levels. Households are increasingly feeling the pressure of debt, but we are still in the normalization process. The cushion of savings and home equity is proving to be quite resilient.

Canadian Insolvencies, Bankruptcies and Proposals

What the hell is insolvency? This is an official filing made when a borrower is unable to meet their debt obligations. They can be a bankruptcy or consumer proposal. The first is the discharge of debt, which often leads to the liquidation of assets. The latter is a negotiation to pay a portion of what is owed, more time to pay it back, and/or both. Today we are looking at the aggregate of two types of consumer files.

Canadian consumer insolvencies are 22% higher than last year

Canadian consumer insolvencies are on the rise and are becoming significant. OSB issued 9,156 files in September, 3.1% more than the previous month and 22.1% more than last year. That’s a big jump, but don’t expect the rate to ease just yet. We are not yet at the volume of consumer defaults in 2019, so this is just normalization. The impact of higher rates on those numbers won’t be reflected for at least a few months.

Canadian households generally have more debt problems these days

The rise in consumer insolvency has been a common theme over the past year. In the last 12 months ending in September, the council has seen 96,565 bankruptcy cases. This is an increase of 5.9% compared to the previous period, accelerating with the growth we saw in August (+3.9%). Again, this is more than 30% lower than the same period in 2019.

Canadians are facing rising inflation, rising rates and a pile of debt. This is a known fact all over the world, and it will be seen that insolvencies are increasing. It is a dangerous combination, and it makes the home team less resistant in the event of a hit. However, that is not what we are seeing today.

Bankruptcy cases are increasing and normalizing to pre-pandemic levels. Strong jobs, big savings and home equity are providing a cushion. It is not until we see a significant erosion of these factors that the debt trifecta will occur. Almost all experts see it hitting in the coming months; it’s not here yet.

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