Insolvencies on the rise in Canada, new data show

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Insolvencies in Canada are on the rise, new data released on Wednesday shows, as soaring prices continue to weigh on households.

More Canadian consumers are filing for insolvency, new data released on Wednesday show, as rising prices continue to weigh on households.

Consumer insolvency filings jumped 22.5 per cent in the third quarter of the year compared to the same time last year, according to statistics released by the Office of the Superintendent of Bankruptcy Canada. A total of 25,809 consumers filed for insolvency, up 2.3 per cent from the previous three months.

While insolvency filings are still below pre-pandemic levels, the figure is surging. In September alone, insolvencies increased 3.1 per cent from August and 22.1 per cent compared to 2021. The third quarter year-over-year rise also marked the largest increase in 13 years.

"The concern is that more Canadians are reaching their breaking point financially," André Bolduc, vice-chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), said in a statement.

"As many desperately search for solutions to their debt problems, they may be lured by unrealistic promises to quickly solve their debt problems or fix their credit score. Unfortunately, those promises can end up being too good to be true."

The COVID-19 pandemic saw the number of Canadian consumers and businesses filing for insolvency plummet in part due to the financial supports provided by the government. But as the economy reopened and the financial support programs wound down, Canadians have been increasingly turning to insolvency.

In the third quarter, the total number of business insolvencies increased by 48.5 per cent compared to last year, but were still 4 per cent below 2019 levels. The sectors seeing the biggest increase in insolvencies include accommodation and food services and construction.

"We're coming back towards the numbers that we saw before the pandemic," CAIRP chair Jean-Daniel Breton said in an interview with Yahoo Finance Canada.

"At this point in time we're not expecting a floodgate of insolvencies, we're expecting the numbers to come back to a normal level. But there could be some impact due to the difficult economic situation, inflation and rising interest rates."

The increase comes as the Bank of Canada continues on one of the most aggressive tightening cycles in its history in its fight against soaring inflation. The central bank has issued six consecutive rate hikes to bring its benchmark rate from 0.25 per cent in March to the current 3.75 per cent. Inflation in Canada hit 6.9 per cent in September, with food prices rising at rates not seen for 41 years.

Bryan Tannenbaum, president of restructuring at accounting and consultancy firm RSM Canada, says businesses face "a perfect storm" of challenges, including an economic slowdown, increased borrowing costs, inflation and production and labour issues.

"(These) are ingredients that have and will result in an increase in the number of insolvent corporations," he said in an emailed statement.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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