An alarming number of Canadians filed for insolvency in 2018 due to higher interest rates and mounting household debt.

According to the Office of the Superintendent of Bankruptcy, 125,266 Canadians became legally insolvent in 2018 – a 2.5 per cent rise over the year before and the second highest number since 2011, said the Canadian Association of Insolvency and Restructuring Professionals.

“While a variety of economic factors affect the number of consumer insolvencies filed in a year, debtors are most sensitive to interest rate changes. There is a lag between interest rate changes and the impact on insolvency filings, so we are just starting to see the effect of the rate increases now. We expect that consumer insolvency filings will continue to rise for at least the next two years,” said Chantal Gingras, chair of CAIRP, in a statement.

insolvency bankruptThe association said the highest annual increases by provinces were in Newfoundland (13 per cent ), Alberta (9.6 per cent), Saskatchewan (8.9 per cent), Prince Edward Island (8.6 per cent) and Manitoba (8.4 per cent). Quebec (0.2 per cent), Ontario (1.8 per cent), and British Columbia (1.8 per cent) saw slight increases. Filings were lower in Nova Scotia (2.3 per cent) compared to 2017.

“The official statistics don’t tell the full story: there is a lot of ‘hidden’ insolvency out there. Some may be technically insolvent, unable to pay their bills, but not yet seeking out debt relief options,” said Gingras.

CAIRP also said that data indicates a record number of Canadian households are choosing consumer proposals over bankruptcy. These debt relief solutions – where individuals make an offer to pay back creditors a percentage of what is owed to them or extend the length of time over which the money is paid back – hit a record high of 70,175 in 2018, up nine per cent on the year before. Bankruptcies were down five per cent over the same period, said the association.

“Consumer proposals are often more appealing because those who choose this option can keep some of their assets. They also receive all the same legal protections from creditors as they would during a bankruptcy; if creditors are garnisheeing wages or have filed lawsuits, these actions are also stopped,” said Gingras. “There is also less financial stigma associated with a proposal than with a bankruptcy.”

The association said business insolvencies in 2018 across Canada were slightly lower than the previous year (-0.8 per cent). However, this is the lowest rate of decline in 17 years, suggesting business filings may be on the rise in 2019. Interestingly, the mining, oil and gas extraction sector registered the biggest decrease, down 48.9 per cent, it said.

“After the initial wave of insolvencies in this sector, with oil prices having risen since their low in 2016 we are now seeing a significant slowdown in the number of filings,” said David Lewis, an Alberta-based board member of CAIRP.

The two business sectors that registered the biggest increase in insolvency filings were construction (9.5 per cent); and real estate, rental and leasing (9.6 per cent), added CAIRP.

– Mario Toneguzzi for Calgary’s Business

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