The number of people filing for bankruptcy fell to a record low in April, as government support programs and mortgage deferrals during the coronavirus pandemic are keeping people’s heads above water for now.
According to official data released by the Office of the Superintendent of Bankruptcy Canada, a total of 6,700 people across Canada filed for bankruptcy or made a formal proposal to their creditors that month, a figure that is down by 43 per cent compared to the same month a year earlier.
That’s the biggest plunge on record dating back to 1988, and the smallest number of people filing for bankruptcy since at least 2007.
But the decline in personal bankruptcies doesn’t suggest fewer people are feeling the financial pinch. Rather, it suggests that people are doing whatever it takes to pay the bills for now.
“While more Canadians are now struggling with debt, their priorities during COVID-19 are paying for necessities,” bankruptcy trustees Doug Hoyes and Ted Michalos said of the numbers.
Official numbers from Statistics Canada show that more than one million Canadians lost their job in March, and another two million lost their job in April. Numbers for May are due out on Friday, and they are expected to show at least another million jobs lost.
Counterintuitively, that record-setting pace of job losses may be keeping insolvencies at bay for now.
“If not working, a debtor is largely creditor proof,” Hoyes and Michalos said. “The courts are closed [and] people who have been laid off have no income to garnish.”
As of the middle of May, more than seven million Canadians had applied for the Canada emergency response benefit, Ottawa’s $35 billion program for laid-off Canadians. The program seems to be having an impact in keeping creditors at bay, as “CERB payments cannot be garnished,” Hoyes and Michalos noted.
While it’s encouraging to see people keeping their heads above water, that trend likely can’t continue if income levels stay depressed, the analysts said.
“We expect the decline in insolvencies to continue into the summer as the economy, and courts, remain closed. Mortgage deferrals and credit card payment deferrals have helped remove repayment pressures. However, once supports such as CERB and deferrals end, we expect to see a dramatic rise in defaults and consumer insolvencies,” Hoyes and Michalos said.
“The economic impact of COVID-19 will be long-lasting.”