Positive COVID effect: Canada shows the lowest consumer insolvency rate in 20 years

In 2020, Canadian consumers reported the lowest insolvency rate in 20 years due to government support and creditor deferral programs.

According to the Office of the Superintendent of Bankruptcy Canada, there were 96,458 filings last year. It’s the lowest number since 2002 and a 30% decline from 137,178 insolvencies seen in 2019. Moreover, it’s the biggest annual decrease since 1987.

The decline in bankruptcies shows probably the most vivid metric for the largest economic surprise of 2020 – the significant improvement of Canadian household finances over the pandemic.

Due to income support from the federal government and credit deferrals from banks, Canadian households were able to avoid a financial crash during the worst months of the pandemic, even though more than 3 million people lost their jobs. The report by Statistics Canada says disposable income and savings were even up during the lockdowns.

“Higher average incomes are one of the reasons of such results,” – noted André Bolduc from the Canadian Association of Insolvency and Restructuring Professionals. “In addition to it, banks allowed the deferrals.”

However, there are certain signs that the situation may gradually return to normal. The fourth quarter showed a 13% increase in insolvencies from the third quarter, marking the biggest quarterly gain since 2009.

We can see the federal government reducing support, banks are no longer so lenient when it comes to missed payments.

“Insolvency rates are going back to more usual levels,” – said Bolduc. “I see it from people that we meet, that collection activity is growing.”

The report also shows that business filings fell significantly last year, marking a 24% annual drop to 2,786.