With inflation pushing more Canadians into insolvency, a new report delves into the kinds of debt involvent people have, and what drove them into their current situations.
Insolvency is a financial state where someone cannot meet debt payments on time. It can lead to bankruptcy, which is a legal process that happens when someone declares that he or she can no longer pay back debts to creditors.
The top cause for people being forced into insovency is general financial mismanagement that caused them to overextend credit, according to insolvency trustees Sands & Associates' 2023 B.C. Consumer Debt Study.
That study found 27 per cent of 1,700 surveyed British Columbians who recently filed for an insolvency proceeding said that they got where they are by buying items without thinking about their budgets, and then going into debt when they had to pay for the items.
The second most-cited reason for landing in insolvency was using credit for essential purchases that income could not cover.
Other causes cited include:
• illness, injury or health-related problems (11 per cent);
• marital or relationship breakdown (seven per cent);
• job-related issue (five per cent); and
• pandemic-related job loss or reduction in work hours (five per cent).
The most recent Office of the Superintendent of Bankruptcy data show that the total number of insolvencies (bankruptcies and proposals) in Canada increased by 5.1 per cent in November 2023, compared to the previous month.
Bankruptcies increased by 7.1 per cent, while proposals increased by 4.5 per cent, it said.
The total number of insolvencies in November 2023 was 24.4-per-cent higher than the total number of insolvencies in November 2022. Consumer insolvencies increased by 24 per cent, while business insolvencies increased by 36.8 per cent, according to the national data cruncher.
In B.C., there were 1,208 consumer bankruptcies or proposals in November, up more than 25.4 per cent from the same month in 2022.
In what might seem obvious, virtually all of the people surveyed have been affected by inflation.
The Sands & Associates study found 95 per cent of survey participants indicated that their household has been impacted by recent inflation increases. The surprise here might be that five per cent of those surveyed did not feel any effects of rising prices for essentials.
Canada's inflation rate rose to a 39-year peak of 8.1 per cent in June 2022. The nation's inflation rate had steadied to 3.1 per cent in November, while B.C.'s inflation rate was slightly more, at 3.2 per cent in November, which is the most recent month for which data is available.
Economists expect inflation to tick up in December.
More than 4 in 5 participants (87%) told Sands & Associates that filing a Consumer Proposal or declaring personal bankruptcy has helped them manage day-to-day finances despite rising costs.
Being deep in debt unsurprisingly caused mental-health challenges.
About 83 per cent of survey respondents said that they were in a state of constant worry about debt. About 79 per cent said that their mental health suffered by being in debt, while 61 per cent said that their self-esteem suffered, according to the study.
About one in six respondents said that they experienced suicidal ideation because of their debt stress, the study said.
