While the COVID-19 pandemic has raised justified concerns about the state of Canadians’ finances, there seems to be little reason for panic as insolvency levels in 2020 actually dropped to historic lows.
Data from the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) indicated that consumer insolvencies shrunk to an 18-year low, with a 30% annual drop. In Q4 2020 alone, consumer filings declined by 33.5%, The Motley Fool reported.
Business insolvencies declined by 24% last year, the lowest that figure has been since tracking began in 1987.
“These historic low insolvency filings reflect the government aid programs that have kept many individuals and businesses afloat despite the significant financial distress caused by the pandemic," said Mark Rosen, chair of CAIRP.
Federal financial aid packages and loan payment deferral programs have proved instrumental in manufacturing general economic stability in Canada, but Rosen warned of a lingering threat.
“What we can’t see in the insolvency data yet is how things will change as the taps are turned off,” Rosen said.
In a separate analysis, insolvency trustees Hoyes Michalos pointed to Canadians age 50 and above as among those increasingly burdened by the lack of liquidity. The demographic’s share of insolvencies spiked from 28.3% in 2019 to 31.4% right after the COVID-19 lockdowns last year.
A major driver of this trend is the fact that this cohort carries some of the heaviest debt, which CERB might not have been able to cover, said report co-author Doug Hoyes.
“It used to be people owned homes with not much equity (and if things went bad) they would file for insolvency,” Hoyes told HuffPost Canada.
“Now the average home is $1 million, and if you’ve owned a home for a few years you’ve built up lots of equity, even if you overpaid,” Hoyes continued, adding that homeowners with the ability to refinance or get a HELOC are likely to come through the rest of the pandemic unscathed. “It’s the seniors who have not owned a home, and didn’t share in asset bubbles, who are in the greatest trouble today.”