Insolvency cases on the rise… and counting

Last year was not easy for Canadians who had to declare bankruptcy or make a proposal to their creditors: more than 100,000 consumers filed for insolvency in 2022. This is another increase by 11% compared to 2021, which was an incomparable year!

Back to “normal” years

These figures, released by the Office of the Superintendent of Bankruptcy, therefore show a significant increase in 2022, but they remain 27% lower than those of 2019.

The pandemic has turned the finances of people and businesses upside down, sometimes by putting pressure, sometimes by providing one-time financial assistance or a grace period. This has therefore put a brake on requests for proposals from consumers.

“During the pandemic, everything was put on hold”, puts in context André Bolduc, licensed insolvency trustee and vice-president of the Canadian Association of Insolvency and Restructuring Professionals. “Government aid is no longer there, it’s a return to normal, and the insolvency rate is also returning to normal,” he said. But there are possibilities that it will go beyond what we had before the pandemic. »

Pierre Fortin, president of Jean Fortin, financial reorganization, also recalls that creditors have been more flexible over the past two years and are gradually resuming their recovery requests.

Inflation again…

According to the Canadian Association of Insolvency and Restructuring Professionals, it is to be expected that bankruptcies will continue to increase, since inflation puts additional pressure on consumers’ budgets.

Even if tenants represent nearly 85% of people who go bankrupt or who have to make a proposal to their creditors, André Bolduc specifies that owners who have a variable rate mortgage are more vulnerable at present. Just like those who will have to renew their mortgage at the start of 2023.

To this, he says, must be added the other current expenses which are increasing, starting with the price of food. People who plan less, who don’t have a safety cushion or savings are more at risk.

Trustee Pierre Fortin also expects this rise to continue, reaching pre-pandemic levels from late spring or summer 2023.

“People come to us when they’ve stretched the rubber band. Late payments have started, the credit file is affected and this is the beginning of financial difficulties,” says Mr. Fortin.

More proposals

Among the insolvency files filed in 2022 by Canadian consumers, three quarters filed a proposal and the other quarter, an assignment of property, therefore a bankruptcy.

And this is excellent news, explains Pierre Fortin.

“Someone who makes a proposal has enough income to make an offer to their creditors or an asset they want to protect, often a building that has increased in value with the pandemic,” he says.

It should also be noted that this level of “proposals”, compared to bankruptcies, is on the rise. Before the pandemic, it was rather about half of people in difficulty who declared bankruptcy, specifies Pierre Fortin.

The Quebec exception

If Quebec climbs into the top 3 of the provinces with the most insolvency files for 2022, the increase, proportionally, is lower there than in provinces such as British Columbia or Nova Scotia.

For what ?

According to the president of Jean Fortin, financial reorganization, two factors explain this Quebec exception. “In Quebec, we have a lower homeownership rate than in the rest of the country and the value of houses, before the pandemic, was much lower here than elsewhere in the country. This means that we have always had a smaller percentage of our family budget that went to paying the mortgage,” says Pierre Fortin.

Interest rate increases therefore inevitably hit harder elsewhere in the country.

The other determining factor: the level of personal credit indebtedness is lower in Quebec (credit cards, personal loan, etc.).

And the people who appear before the trustees, explains Pierre Fortin, are often those who have difficulty managing these personal debts.

Companies in difficulty

The numbers are also impressive for companies whose insolvency cases jumped 37% last year, making it the biggest jump in 30 years. On an annual basis, the number of insolvency files remains lower than it was before the pandemic – 7.6% lower than 2019.

Construction, accommodation and food services have been hit harder, which will come as no surprise to anyone coming out of years of a pandemic that has put a damper on all three economic sectors.

Contrary to the trend for consumers, 77% of these companies declared bankruptcy, while 23% offered a proposal to their creditors.