Debt reckoning looms, industry experts fear
End of assistance during pandemic could push many over the brink
Consumer bankruptcies and debt-settlements in B.C. have plummeted during COVID-19, which sounds like a good thing, but insolvency trustees worry that troubles lurk beneath the surface.
Government assistance programs and bank payment deferrals have cushioned the economic blows of the pandemic for many, but once those all end in the coming months, financial stresses will return.
Statistics from the Superintendent of Bankruptcy show that 2,099 B.C. consumers filed for debt relief in the last three months of 2020, a 28 per cent decline from the same period of 2019 and the portion of filings for straight-up bankruptcy, 593, represented a 44 per cent drop.
“Creditors weren't really coming after citizens, and of course the government supports (were) kind of staving off people taking those steps (of filing for bankruptcy),” said Shawn Stack, vice-president of the insolvency trustee Bromwich+Smith.
“But as that stuff ends, it's very likely that this is going to be kind of coming home to roost,” said the Calgary-based Stack.
It's a human response to focus on the crisis at hand and ignore other problems, Stack said, and it's likely that debt problems have taken a back seat to COVID-19.
And through experience, Stack said, when people file for bankruptcy “often it's the case that what they're saying is, `You know, I ought to have been here a couple of years ago.' “
Credit counsellors are also expecting to see an increase in business once government supports disappear, said Scott Hannah, CEO of the non-profit Credit Counselling Society, but he also sees positive signs in the savings rates of Canadians and declining levels of consumer debt.
“We believe that will likely happen in (the third quarter) and (fourth quarter of 2021), but I don't know if it's going to be this dramatic upswing of hundreds if not millions of people in financial difficulty,” Hannah said.
Hannah added that consumers also haven't spent as much on travel or going out over the last year, which has helped them save or pay down debt.
The credit-rating agency Equifax, for instance, found that the average non-mortgage debt of British Columbians declined just over two per cent to $24,317 in the fourth quarter and the percentage of people behind on payments declined 14 per cent.
“It's the individuals who were already starting to experience financial difficulties prior to the pandemic” who will run into problems, Hannah said. “It's been our message to consumers that before your relief benefits and everything lapse, now is a good time to get some help so you can explore your different options.”
However, there are also signs that the number of consumers close to the financial edge might be higher than reports on rising savings rates and declining consumer debt levels might suggest, said insolvency trustee Linda Paul of the accounting firm MNP.
There are people in a lot of occupations who haven't been affected financially and saved more money during the pandemic, but “I don't think that's widespread,” Paul said.
However, the Consumer Debt Index that MNP produces, with a survey by the poling firm Ipsos, found that 53 per cent of B.C. respondents were $200 away from not being able to cover all their bills in its first-quarter report for 2021, the highest since it started the survey in 2016.
Additionally, the survey found that 27 per cent of B.C. respondents had also taken on more debt to pay bills during the pandemic, with 25 per cent admitting they expect to continue racking up credit into 2021, which leaves those households vulnerable.
“We're starting to see an uptick in individuals calling our office,” said Paul, “which is positive in the sense that people are being educated about what their options are.”
The big option is that consumers can seek a debt-settlement agreement with their creditors, which is referred to as a consumer proposal, instead of filing for bankruptcy.
In the last three months of 2020, consumer proposals made up 72 per cent of B.C.'s insolvency filings by individuals and the agency reported in February that the proportion of proposals to bankruptcy filings continued to rise.