Consumer insolvencies in Canada climb to 8-year high

Increase stokes concern that country’s record level household debt is unsustainable

Canadian consumers filed the most insolvencies in eight years in March, an indication that record debt levels may be catching up with an increasing number of households.

The Office of the Superintendent of Bankruptcies reported consumer insolvencies rose 5.7 per cent to 11,963 in March, compared with11,315 in the same month a year earlier. It was the highest volume of filings in any month since March 2011.

After declining for years, insolvencies are beginning to tick up again, stoking concern the country’s record level household debt — $2.17 trillion at the end of the first quarter — is unsustainable. Statistics Canada reported in March that the seasonally adjusted household credit market debt as a proportion of disposable income increased to 178.5 per cent in the fourth quarter of 2018. That

That means there was roughly $1.79 in credit market debt for every dollar of household disposable income in the fourth quarter.

Another key debt ratio, the household debt service ratio increased in the same quarter of 2018 to 14.9 per cent from 14.7 per cent, according to The Canadian Press. The household debt service ratio measures the total obligated payments of principal and interest on credit market debt as a proportion of household disposable income.

The uptick in debt ratios was attributed to an increase in household borrowing.

In volume terms, however, insolvencies are still well below the peak of more than 15,000 reached in September 2009, in the aftermath of the financial crisis. Insolvencies include bankruptcies and proposals. Consumer bankruptcies fell 3.9 per cent in March from a year earlier, while proposals, where the debtor agrees with creditors to pay a certain proportion of what’s owed, climbed 12.9 per cent, the OSB reported.