Insolvency filings in Canada nearing pre-pandemic levels, bankruptcy office says

The number of Canadians filing for insolvency is approaching pre-pandemic levels, according to numbers from the federal Office of the Superintendent of Bankruptcy. 

Insolvency rates dropped during the start of the COVID-19 pandemic, but Michelle Statz, a Saskatchewan-based licensed insolvency trustee with Bromwich+Smith, says that November 2022 saw the highest number of insolvencies since March 2020, the month that saw COVID-19 lockdowns and the announcement of the initial Canada Emergency Response Benefit (CERB).

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

"It's not necessarily surprising to us in this industry," she said, noting rising household consumer debt levels. "We've been somewhat expecting this." 

Numbers from the bankruptcy office show there were 9,784 insolvencies across Canada in November, 17.5 per cent higher than in November 2021.

Among the provinces feeling the pinch are British Columbia and Ontario, which saw year-over-year rises in insolvencies of 32.5 per cent and 23.9 per cent, respectively. 

"I think there's a general theme across the country with cost of living, real estate values," Statz said. "We know the more expensive places to live in Canada are B.C. and Ontario, so we do see numbers rising there."

Insolvencies can take the form of bankruptcy, where a borrower gets their debt wiped out but at the cost of losing any of their assets — and also finds it next to impossible to borrow in the future. Or they can be a proposal to creditors, where the borrower agrees to pay back a portion of what they owe, with the creditor's OK.

Pandemic impacts

"It's not something that happens overnight in this industry," she says. "It tends to take time for people to get to that point where they feel like they need to file."

More financial headwinds may be in store.

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

"Prevailing household debt and housing imbalances will mix 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 about it. You want to deal with it head-on."