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Personal insolvencies in Canada reach their highest level in a decade

By: Lisa Coxon on December 9, 2019

Personal insolvencies in Canada have reached their highest number in a decade, according to the latest data from the Office of the Superintendent of Bankruptcy (OSB).

In October, Canadians filed 13,200 bankruptcies and consumer proposals — the highest number since September 2009, and one that marked a 13% increase from October of 2018. 

Insolvencies can include a formal bankruptcy, where the borrower is absolved of their debts, but faces a stain on their credit report for about 9 years, or a consumer proposal, which is a formal offer borrowers can make to creditors via a licensed insolvency trustee to pay back a portion of their debt over an agreed upon period of time. A consumer proposal will usually only stay on someone’s credit report for about 3 years.

There are many theories floating around as to why insolvencies are on the rise in Canada.

Lars Osberg, an economics professor at Dalhousie University, told that we’re seeing the fallout from interest rates that, for much of 2017 and 2018, were consistently on the rise.

Between the beginning of 2017 and the end of 2019, the Bank of Canada raised the overnight interest rate five times. The overnight interest rate affects the prime rate offered by major banks on products like variable-rate mortgages and lines of credit.

"Even at the time there were articles in the news saying that well, about two years down the road you're going to start seeing more insolvencies and bankruptcies," Osberg said. "Because it takes a while for the impact of an increase in interest rates to feed through to bankruptcies."

Fingers are also getting pointed at high unemployment rates, wage stagnation, and property prices.

But Doug Hoyes, a licensed insolvency trustee and co-founder of Hoyes Michalos & Associates Inc. in Toronto, said in a Twitter thread on Monday morning that when most “experts” blame these factors, they’re actually missing the bigger picture.

In a series of tweets, Hoyes explained that the real problem facing Canadians is the rise they’re seeing in everyday living expenses, such as food and rent.

“My average client spends 31% of their income on personal and living expenses,” Hoyes wrote. And “40% of their income on housing costs.”

“Rising expenses = less money for debt repayment = rising insolvencies.”

According to OSB’s data, every province in Canada saw an increase in consumer insolvencies in the last 12-month period. The three territories, however, saw their consumer insolvencies number decrease.