Insolvencies in Canada surged by a third in January compared with a year ago as consumers struggled with rising prices and higher interest rates, the Office of the Superintendent of Bankruptcy said Wednesday.
The federal regulators said there were 9,066 total insolvencies filed in the first month of the year, up 33.7 per cent from 6,779 in January 2022.
The increase came as rising interest rates drove up borrowing costs while inflation pushed up the cost of living and stretched household budgets.
“The impacts of high inflation and numerous interest rate hikes are taking their toll on Canadians,” said Andre Bolduc, a licensed insolvency trustee and vice-chairman of the Canadian Association of Insolvency and Restructuring Professionals.
“These individuals and families may turn to credit cards or lines of credit to bridge the gaps in their household budgets _ to pay for groceries and essentials, for example,” he said in a statement. “In the higher interest rate environment, it is harder to pay off these debts.”
The number of consumer insolvencies for the month rose 33.0 per cent compared with a year earlier.
There were 8,735 insolvency filings by consumers for January, including 1,859 bankruptcies and 6,876 proposals. The result compared with 6,566 insolvency filings by consumers in January 2022 when there were 1,768 bankruptcies and 4,798 proposals.
Meanwhile, business insolvency filings for January were up 55.4 per cent compared with a year ago as they totalled 331, up from 213 in January 2022.
“It has been a tough start to 2023 for Canadian businesses,” Bolduc said. “Many are struggling to manage the impact of higher interest rates, inflation and the continuing effects of the pandemic.”
Yet the insolvency numbers may not tell the whole story, he said.
Struggling small business owners may choose to walk away altogether, rather than take formal steps to wind down the business, Bolduc said.
Walking away from a business rules out the possibility of preserving ongoing business operations through restructuring or “corporate workouts,” he said.