30% of Canadians say they’re insolvent, MNP debt survey shows

As the COVID-19 health emergency fades across the country, Canadians are reporting very different levels of concern about their debt, according to a recent poll conducted by Ipsos on behalf of debt consultancy MNP.

Higher-income households are more likely to say that their debt situation has improved compared to before the pandemic. Those with lower incomes, on the other hand, are more likely to say things have gotten worse.

Younger Canadians, in particular, are more likely to report both that it’s become more difficult to keep up with debt payments and that they’ve accumulated additional liabilities during the pandemic.

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Overall, survey respondents said they have more money left over at the end of the month than they did in a previous poll in March (the average amount of self-reported left-over cash rose by $106 to $731). However, 30 per cent of those who answered the poll reported being insolvent, the highest share since 2017, MNP noted.

It’s a split that others who work with debtors are seeing as well.

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“There are a lot of people who now have cash, a lot of people who’ve been able to use the pandemic — when they weren’t spending money but still had their paycheck — to actually deleverage and pay off their debt,” says Doug Hoyes, a licensed insolvency trustee and co-founder of Ontario-based Hoyes Michalos.

On the other hand, others who’s lost their job during the pandemic had to take on more debt to make ends meet, he adds.

As the economy reopens, some Canadians with increased debt loads will may become more financially vulnerable, Hoyes warns.

Ottawa has started gradually phasing out some of the extraordinary income support measures it rolled out as parts of Canada’s labour market cratered during the pandemic, leaving millions without jobs.

The amount Canadians can receive through the Canada Recovery Benefit (CRB) will change to $300 a week — down from $500 a week — for those applying for the first time starting with the pay period that begins with July 18 or for those who have already received 42 weeks of CRB.

And the temporary changes the federal government introduced to bolster EI benefits during the pandemic are only in effect until September 2021.

The lifting of pandemic-related restrictions is generating strong demand for workers from sectors that have been hard-hit by the health measures, such as the restaurant sector and the hospitality industry.

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And there are signs that employers across many industries are eager to hire. In early July, for example, job postings on job-search site Indeed Canada stood 33 per cent above their February 2020 levels.

But, counterintuitively, some debtors may start to struggle more financially as they go back to work, Hoyes warns.

Joblessness means having no wages that can be garnished, he explains. Creditors like banks and credit card companies can’t garnish income support benefits like the CRB, he adds.

“So while you are not earning wages, you are, in effect, protected,” he adds.

While Hoyes says some debtors will be able to catch up on payments or negotiate a solution with creditors on their own, he also expects personal insolvencies to start rising in the fall, as more people return to work and creditors ramp up collection activity.

Homeowners with mortgages may be another “at risk” group, according the MNP report. One-third of surveyed Canadians who own a home said they feel “house poor,” with little money left over at the end of the month after paying bills related to their home. Approximately 5.5 million homeowners are financially susceptible to an interest rate increase or change to their job situation, according to the survey.

A survey released Thursday by the Canada Mortgage and Housing Corporation found that two-thirds of recent homebuyers paid the highest price they could afford on the purchase of a new home.

At MNP, licensed insolvency trustee Grant Bazian has words of caution for those who’ve emerged from the pandemic in better financial shapes too.

With one-third of survey respondents saying they planned to increase spending as the economy reopens, Bazian warns against indulging in budget-busting spending sprees.

“A significant proportion of Canadians appear to be ready to emerge from their bubbles and go straight into shopping malls, restaurants and airplanes to celebrate the pandemic wind down,” Bazian, who is president of MNP’s insolvency practice. “For many, the financial damage will likely linger for years even as they regain employment and try to cope with new debts they may have accumulated.”