Canada’s Insolvency Rate Falls To Lowest Level Since 1997

The number of insolvency (bankruptcy) filings in Canada fell to the lowest level since 1997 as massive cash injections from the federal government in Ottawa kept households afloat during the COVID-19 pandemic.

There were 6,464 insolvency filings in August, down 2.4% from July and 42% from a year earlier, according to the latest data from the Office of the Superintendent of Bankruptcy Canada. From April to August, filings averaged 6,442 per month, the lowest for a five-month period since 1997.

The pandemic created an unprecedented shock to Canada’s labour market, resulting in the loss of more than three million jobs at its peak. But government support measures, including more than $60 billion ($45 billion U.S.) in emergency income support, have cushioned households from the worst effects of the crisis.

However, analysts are warning of a potential tsunami of bankruptcy filings once government relief measures end. Prior to the global pandemic, consumer insolvencies in Canada had been growing at a double-digit pace since the start of 2019 as the system worked through a decade of debt fueled by low interest rates.

Then insolvencies came to a screeching halt starting in March when government relief kicked in. Additionally, Canadian courts have largely been shut down, making it hard for debtors to take legal action to get their money back from people. And many people who were in financial trouble before COVID-19 got some relief simply because they haven’t been spending as much.

In addition to government stimulus, roughly one out of every six Canadian homeowners with a mortgage applied for programs that banks offered to defer all or part of their payments for up to six months this spring. But those programs are slated to end in the coming weeks, and those mortgage payments will need to be paid.

All told, Canadians owed $2.3 trillion of debt at the end of June, which consists of $1.5 trillion worth of mortgages, and $779.4 billion worth of consumer debt such as credit cards.