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After a lull in the early days of COVID-19, more and more Canadians are starting to declare bankruptcy again, and industry experts say the government needs to do more soon or the economy could face a tsunami of insolvencies in the coming months.
The Canadian superintendent’s office reported this week that 7,658 Canadians filed insolvencies in September, an increase of nearly 19% from the previous month’s level and the highest since the start of the COVID-19 pandemic in March.
Despite the economic hardship the pandemic has brought, bankruptcy proceedings have actually slowed to a crawl for most of 2020 as the unprecedented slew of support programs has given many Canadians a boost to their incomes – and often a temporary respite from their debts, enough to keep their heads above the water.
“In the early days of COVID, everything went on hiatus, including collections,” Authorized Bankruptcy Trustee Andre Bolduc said in an interview. “Finances have gone by the wayside, but things are slowly returning to the new normal.”
The default rate is actually around a third lower than last year around this time, but experts like Bolduc expect it to multiply in the coming winter months and likely to eclipse previous highs. “Before COVID, the majority of families lived from paycheck to paycheck,” he said. “[Their] the debts have gone nowhere, [so] they will still be there after COVID. “
Liz Mulholland, CEO of Prosper Canada, a charity dedicated to expanding economic opportunities for Canadians living in poverty, describes the situation as “a slow-motion train wreck that will occur over the next six months.”
This is because while many parts of the Canadian economy have largely recovered, this is not the case with low-income Canadians, who were more likely to lose a job due to the pandemic and less likely to get one back by now.
Although many Canadians have managed to make ends meet, Mulholland estimates that up to 25% of the population is seeing their financial position “deteriorate from week to week. They are moving inexorably towards that financial precipice of insolvency and sooner or later will overcome it. this winter, “he said.
Government programs like Canada Emergency Response Benefit (CERB) were a lifeline for many of them, but with that program finished and now moved into the less generous Canada Recovery Benefit – which itself expires next year – the number of Canadians on the edge of the financial knife is bound to grow.
Michelle Pommells, CEO of Credit Counseling Canada, says those income support programs have certainly helped, as have many advertised mortgage deferral programs that have given about one in six Canadian borrowers a temporary respite on interest payments. But even those programs are ending now.
“For the families that got into trouble, the deferrals helped but there is no free lunch,” he said in an interview.
Credit advice
Pommells says even before the pandemic many people weren’t taking advantage of credit counseling services that can often help them find a way out of a financial quagmire.
He says the typical person who becomes insolvent tends to have between four and six revolving lines of credit and often shuffles debt from one to the other. “They’re just moving the ball until they finally can’t get credit anymore and then at that point it’s pretty terrible,” he said. “Each month the debt pit gets deeper [and it can be] tremendously difficult to get out of. “
Insolvencies can take the form of bankruptcy, in which a borrower cancels their debt but at the cost of losing some of their assets and also finds it nearly impossible to borrow in the future. Or they may be what is called a proposal to creditors, in which the borrower agrees to repay a portion of what he owes, with the lender’s okay.
Credit counseling aims to provide borrowers with the tools they need to not slip under the waves again. Pommells said the recidivism rate (the number of people who end up going through the trial again) is 0.01%. “It works,” he said.
Mulholland agrees that an important part of containing the tide of delinquencies will be credit advisory programs. That’s why he worries about other useful programs that have been disrupted at the knees by the pandemic.
Beyond the emergency programs created during the pandemic, low-income Canadians risk missing out on regular charity programs due to closures. Nearly three-quarters of a million low-income Canadians rely on tax-free clinics to file their taxes. About 400,000 did so before the March lockouts closed them all. A small number have since reopened, but it says it’s likely many people using them haven’t filed their 2019 taxes yet.
This means that 35,000 low-income seniors are not eligible for the guaranteed income supplement to which they would otherwise be entitled. This is up to $ 917 per month. And Canada Child Benefit pays up to $ 6,000 per child per year to Canadian families, but it also depends on your tax return. Even beyond the emergency programs, those two could be “paying the rent and putting food on the table,” Mulholland said.
That’s why Prosper is calling on the federal government to restart funding for a whole range of programs targeting those who need it most. Against the backdrop of a $ 343 billion federal deficit, the demand is relative pittance: $ 15 million to help the 750,000 most needy Canadians access the financial health services they likely already qualify for.
Mulholland says other countries, including the UK, Australia, and New Zealand, have spent far more on similar initiatives, because the cost of inaction far outweighs the cost of the programs themselves.
“If 20% of your population is on this boat, this is a real brake on your recovery [because] there is no consumer confidence. They won’t be out there spending money, “he said.
“As my mother would say, you are wise and foolish.”
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