New data shows insolvencies for both Canadian consumers and businesses rose during the second quarter.
The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) said in a press release Friday that 35,082 Canadian consumers filed for insolvency during the second quarter of the year, marking an increase of 12.4 per cent from a year earlier.
According to CAIRP, consumer insolvencies reached a four-year high during the quarter as households faced high living costs coupled with high debt servicing costs and lingering inflationary impacts.
“Consumer insolvencies have reached their highest level in over four years, underscoring the significant headwinds many Canadians are still facing,” André Bolduc, a licenced insolvency trustee and chair of CAIRP, said in the press release.
He added that if people are forced to allocate more of their income to basic necessities, less money is available for things like credit card bills or debt servicing.
“This often results in missed debt repayments, using credit for daily expenses, receiving collection calls, and experiencing constant stress or losing sleep over financial worries—all of which are signs that an individual should seek professional debt help,” Bolduc said.
According to CAIRP, the last time filing volumes passed 35,000 in a quarter was during the fourth quarter of 2019.
“While various economic factors influence the number of consumer insolvencies filed, debtors are most sensitive to interest rate changes. Although interest rates are on the decline, there is a lag before these changes impact insolvency filings,” Bolduc said.
“Therefore, we expect insolvency activity to remain elevated as the recent rate cuts take time to positively affect Canadians’ wallets and provide relief for household budgets.”
The press release said 1,541 businesses filed for insolvency during the second quarter, marking an increase of 41.4 per cent from the previous year. However, insolvencies fell by 23.1 per cent compared to the previous quarter.
“The decline in business insolvencies from last quarter suggests a potential stabilization, perhaps in part due to businesses managing their finances more conservatively to meet pandemic support repayment obligations. This drop might also indicate cautious optimism as businesses adapt to shifting economic conditions,” Bolduc said.