Highly indebted Canadian households are seeking a lot more creditor relief than usual. Office of the Superintendent of Bankruptcy (OSB) data shows insolvency filings made a big uptick in September. It was actually such a big uptick that it came in as the third-worst September in at least 40 years. It’s a general trend that’s been observed throughout 2024, which indicates a bigger problem than most realize. Household insolvencies are at recession-like volumes despite recent adjustments to real GDP, which theoretically shows that everything in the economy is fine.
Canadian Insolvencies Had One of The Worst Septembers On Record
Canadian consumer insolvencies filed with the OSB in September of each year.
Source: OSB; Better Dwelling.
Canadians are seeking a lot more formal relief from credit woes. The OSB received 11,452 in September, an 8.8% increase compared to last year. It was the third biggest September going back to the mid-80s, only behind 2010 and 2019. The former is easy for most to understand, but the latter often brings up a few questions. Let’s put a pin in that point and circle back in a moment.
Canadian Consumer Insolvencies Are Almost Back To Pre-Pandemic Levels
A rolling 12-month sum of Canadian consumer insolvencies.
Source: OSB; Better Dwelling.
Canadian consumers have generally been feeling the pinch and filing for more insolvencies. The OSB received 135,368 filings in the 12-month period ending in September, an increase of 15.4% compared to the same period last year. Not quite at the most recent peak observed in February 2020, but according to most economists, things are supposedly fine. What does a downturn look like if things are fine and these numbers are marching higher?
Rates might be higher than Snoop Dogg chilling with Martha Stewart, so naturally experts attribute the trend to elevated interest rates. However, the issue is more complicated. Time to pull that pin out and recall the point on 2019 being a worse September.
Pre-pandemic interest rates were roughly half the current level, and households were still under pressure to seek relief. That’s emphasized even further by the 12-month data setting the 2nd highest level in February 2020, right before rates were cut and Canada gave consumers a lifeline.
We tend to forget that Canada was world-renowned for its highly indebted households pre-2020. Lowering rates in 2020 and forcing lenders to take on more generous repayment terms helped people during the pandemic, but it also delayed typical filings. Now the trend is back from the debt, I mean dead.
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