Canadian households are facing a trifecta of problems—rising rates, soaring inflation, and lots of debt. Office of the Superintendent of Bankruptcy Canada (OSB) data predictably shows rising insolvencies for September. However, even with a sharp climb, insolvency filings have yet to reach 2019 levels. Households are increasingly feeling the pressure of debt, but we’re still in the process of normalization. The cushion of savings and home equity is proving to be quite resilient.
Canadian Insolvencies, Bankruptcies, and Proposals
What the heck is insolvency? It’s an official filing made when a borrower can’t meet their debt obligations. They can be either a bankruptcy or a consumer proposal. The former is a discharge of debt, often leading to asset liquidation. The latter is a negotiation to pay a share of what’s owed, more time to repay, and/or both. Today we’re looking at the aggregate of both types of filings for consumers.
Canadian Consumer Insolvencies Are 22% Higher Than Last Year
Canadian consumer insolvencies are on the rise and doing so sharply. The OSB reported 9,156 filings in September, up 3.1% from the previous month and 22.1% higher than last year. It’s a big jump, but don’t expect rate relief yet. We’re still not at 2019 volumes of consumer insolvencies, so this is just normalization. The impact of higher rates on these numbers won’t be reflected for at least a few more months.
Canadian Households Are Generally Facing More Debt Problems These Days
Rising consumer insolvencies have been a general theme over the past year. In the past 12 months ending in September, the board has seen 96,565 insolvency filings. This is an increase of 5.9% from the period before, accelerating from the growth we saw in August (+3.9%). Once again, this is more than 30% lower than the same period in 2019.
Canadians are facing soaring inflation, rising rates, and have a pile of debt. That’s a fact known around the world, and rising insolvencies are going to be seen. It’s a dangerous combination, and it makes households less resilient in the event of a shock. However, that’s not what we’re currently seeing.
Insolvency filings are still rising to pre-pandemic levels and normalizing. Strong employment, lofty savings, and home equity are providing a cushion. It won’t be until we see a sharp erosion in those factors that the debt trifecta will hit. Virtually every expert sees it hitting in the coming months—it’s just not here, yet.