household debt canada

Household Debt and Insolvencies are Surging in Canada

It does not take a PHD in Economics to see that life has become more difficult for Canadians. A casual review of the news headlines will tell you that household debt in Canada is at an all time high. Think about that for a minute.

There are several factors that are contributing to that debt load which is making honest, hard working people groan under its weight. Thankfully, there are laws in our country which can provide debt relief when the load becomes unbearable.  

As a result of that huge household debt load, insolvencies are surging in Canada. 

Let’s take a closer look.

The Stats

The Office of the Superintendent of Bankruptcy (OSB) is the part of the federal government that is responsible for overseeing and regulating formal Bankruptcy proceedings and insolvencies in Canada. Their task is to protect the integrity of the insolvency system.

This would include monitoring and regulating personal Bankruptcies and Consumer Proposals, as well as business Bankruptcy and business insolvencies such as Division 1 Proposals and Receiverships. The actual filing and administration of these matters are tasked to Licenced Insolvency Trustees, also known as LITs. That is us!

In addition to its role as regulator, the OSB tracks the number of filings in each province and tries to identify the causes behind the financial difficulties. 

From its most recent report of June 2023, the OSB has reported total insolvencies were 19.6% higher than June 2022. This has been a consistent trend with month by month increases sometimes reaching 30%. You can find the full report here

Another trend of note is that personal Consumer Proposals for consumer debt and business proposals make up an ever increasing portion of insolvency filings. In fact more than 75% of personal filings are now Consumer Proposals. This indicates that Canadians want to repay a portion of their debt but without huge interest costs and heavy collection pressure.

Household debt and insolvencies are on the rise. Find out what you can do to protect yourself in this timely podcast.

The Causes

There are several causes which are contributing to this problem. We think that the causes are pretty easy to identify.

  • Inflation – the cost of living in Canada has risen dramatically. Most people can relate to walking out of a grocery store with one or two bags of groceries and thinking “ I just paid a fortune for that”. Inflation has touched all areas of life causing people to take on more consumer debt as they are forced to use their credit card or line of credit to afford the purchase.

During the 2020 pandemic, the federal government flooded the economy with money which naturally caused prices to rise. In addition, all levels of government continue to bombard us with taxes, most notably the carbon tax, which puts an upward price pressure on consumer goods.

  • Interest and mortgage rates – in response to the high inflation, the Bank of Canada has raised interest rates to try and dampen demand. Unfortunately, interest rates have not only risen, but the rise has been very quick catching many people off guard. In particular, people holding a variable rate mortgage have seen their mortgage payments rise. This in turn puts pressure on the rest of the monthly budget.

After housing prices jumped in 2020 and 2021, there were many home purchases that required a large mortgage. Those mortgages that had a fixed rate over a five year term will be renewing in 2025 and 2026 for a much, much higher interest rate.  Will people be able to afford the new mortgage payment? Time will tell. Hopefully they can, but if they can’t, the mortgage might go into foreclosure.

The Relief

When your monthly expenses exceed your monthly income you are operating a deficit. This will require the use of some type of debt in order to make the month function.

The way to get rid of a deficit is either to decrease your expenses or increase your income. Easier said than done. If you have not done so yet, the first step is to figure out where your money is going by tracking your monthly expenses and formulating a monthly budget. It is not that hard so give it a try. You will then at least have the information you need to make a good decision.

However, even the best budget may not be able to overcome these huge economic forces of inflation and high interest rates. This is especially true if you are already carrying a debt load on a line of credit or on your credit cards. In this situation, it is good to explore whether a Consumer Proposal or Bankruptcy filing will give you the fresh start that you need.

While these terms may sound scary, they are the law of the land and are available when you need assistance.

We Are Here To Help

Here at Chase & Associates, we offer a free consultation where we will gain an understanding of your situation and provide you with some information about practical options to improve it. 

There is even relief available if you owe income tax debt to Canada Revenue Agency. Contact us today for a consultation and take control of your financial life.

Derek L. Chase, CPA, CA, LIT

Being able to offer debt help assistance to individuals and corporations on a more intimate basis was a driving force in completing a “second CPA” by becoming licensed by the Federal Government as a Licensed Insolvency Trustee (previously Trustee in Bankruptcy) in 1997. It is extremely satisfying to be able to witness lives change for the positive due to a restructuring of financial affairs.