Canadian consumers have become world-renowned for their ability to juggle astronomical amounts of debt. Those days are coming to an end, as insolvencies ripped higher in June, according to the Office of the Superintendent of Bankruptcy (OSB). It was the highest volume for the month since 2010, but the quantity isn’t the only issue—the type of debt intervention is becoming more serious.
Insolvencies, Consumer Proposals, and Bankruptcy
Insolvencies are a formal process a consumer seeks for relief from their debts. There are two types of insolvencies—consumer proposals and bankruptcies—depending on the severity of the debt problem. Both filing types require a licensed insolvency trustee (LIT), who can advise the consumer and oversee the process.
Consumer proposals are an early form of debt intervention, used when a borrower can repay with a little relief. The debt owing is negotiated lower, and a payment plan is made for up to 5 years. The option is capped at $250,000 in unsecured debt, excluding principal residence. The consumer is allowed to keep their assets, but it leaves a serious mark on their credit report for at least 3 years.
Bankruptcies are a more serious issue—the borrower does not pass Go nor do they collect $200. Just checking if you’re paying attention, but bankruptcies are a tool of last resort. The consumer surrenders their assets in exchange for being discharged from debt. Any non-exempt asset is seized and sold to repay creditors. It’s the kiss of death on a credit report, lasting for 6 years after being discharged.
Neither is good, but consumer proposals suggest the issues are still manageable. Lenders suffer partial losses, but the insolvent consumer is seeking relief for manageable amounts. They can still handle repayment with a little help. Rising bankruptcies are bad news–larger lender losses, and severe restrictions on consumer credit access.
Canadian Consumer Insolvencies Saw The Biggest June Since 2010
Canadian consumer insolvency filings in June.
Source: OSB; Better Dwelling.
Canadian insolvency filings are making up for lost time. Consumers made 11,464 insolvency filings in June, an increase of 3.3% from last year. June marked the fifth straight year of annual growth for the month, and the largest volume since 2010. The credit accommodations made in 2020 only delayed the rising pre-pandemic trend—it didn’t resolve it.
Canadian Consumer Filings Have Been On The Rise, Bankruptcy Growth Is Accelerating
Consumer insolvencies have been climbing steadily over the past few years. The 12-month volume reached 137,667 consumer filings in June, rising 14.7% from a year prior. Both April and May saw a mild pullback, but June growth overshadowed the progress. The 12-month period saw the most consumer insolvencies since March 2020.
The source of growth makes this issue more problematic. Consumer proposals represented 9,027 of the filings in June, up 1.9% from last year. The remaining 2,856 filings were bankruptcies, rising 5.9% over the same period. While a minority of total filings, the bankruptcy growth rate was 3x that of consumer proposals. A problem worth keeping in mind, as this shift can imply more serious failures than we’ve seen in recent years.