2 years of consumer insolvencies expected report says

by Steve Randall13 Feb 2019

Rising interest rates were a factor in a rise in consumer insolvencies in 2018 and there are likely to be more to come according to a new report.

The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) says that while the official figures show a 2.5% increase in consumer insolvencies in 2018 to a total of 125,266, this is not the full picture.

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

She adds that, while there are many factors that result in insolvencies in a year, consumers are most sensitive to interest rate increases; and the rises seen in 2018 will have an impact for some time.

“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 2 years,” she said.

Consumer proposals rising
Figures from the Office of the Superintendent of Bankruptcies Canada show that while bankruptcies were down 5% in 2018, there was a 9% rise in consumer proposals to a record high of 70,175.

“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,” explains Gingras. “There is also less financial stigma associated with a proposal than with a bankruptcy.”

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