After a lull in the early days of COVID-19, more and more Canadians are starting to declare bankruptcy again, and experts in the field say government has to do more and soon or the economy could face a tsunami of insolvencies in the coming months.
The Office of the Superintendent of Bankruptcy Canada reported this week 7,658 Canadians filed insolvencies in September, an increase of almost 19 per cent from the previous month’s level and the highest since the COVID-19 pandemic began in March.
Despite the economic hardship that the pandemic has brought, bankruptcy proceedings actually slowed to a crawl for most of 2020 because the unprecedented slew of support programs gave many Canadians a boost to their incomes — and often a temporary respite from their debts, enough to keep their heads above water.
“In the early days of COVID, everything went on pause, including collections,” licensed insolvency trustee Andre Bolduc said in an interview. “Finances went on the back burner but things are slowly getting back to the new normal.”
The insolvency rate is actually about a third lower than it was this time last year, but experts like Bolduc expect it to multiply over the coming winter months and likely eclipse previous highs. “Before COVID a majority of households were living paycheque to paycheque,” he said. “[Their] debts didn’t go anywhere, [so] they will still be there after COVID.”
Liz Mulholland, CEO of Prosper Canada, a charity dedicated to expanding economic opportunity for Canadians living in poverty, describes the situation as “a slow motion train wreck that’s going to unfold over the next six months.”
Very few people who undergo credit counselling need to go through the process again, which is a sign it works, Michelle Pommells says. (Credit Counselling Canada)
While many Canadians have managed to make ends meet, Mulholland estimates that as much as 25 per cent of the population are watching their financial position “worsening by the week. They are moving inexorably toward that financial cliff of insolvency and they will go over it sometime this winter,” she said.
Government programs such as the Canada Emergency Response Benefit (CERB) were a lifeline for many of them, but with that program finished and now transferred into the less generous Canada Recovery Benefit — which is itself set to expire next year — the number of Canadians on a financial knife’s edge is set to grow.
Michelle Pommells, CEO of Credit Counselling Canada, says those income support programs certainly helped, as did much publicized mortgage deferral programs that gave roughly one in six Canadian borrowers a temporary reprieve on interest payments. But those programs are also winding down now.
“For families that got into trouble, deferrals have helped but there’s no such thing as a free lunch,” she said in an interview.
Credit counselling
Pommells says even before the pandemic many people were not taking advantage of credit counselling services that can often help them find a path out of a financial quagmire.
She says the typical person going insolvent tends to have between four and six revolving lines of credit and is often shuffling debt from one into the next. “They are just moving the ball along until finally they can no longer acquire credit and then at that point it’s pretty dire,” she said. “Every month the pit of debt gets deeper [and it can be] tremendously difficult to get out of.”
Insolvencies can take the form of a bankruptcy, where a borrower gets their debt wiped out but at the cost of losing any of their assets — and also find it next to impossible to borrow in the future. Or they can be what’s called a proposal to creditors, where the borrower agrees to pay back a portion of what they owe, with the creditor’s OK.
Credit counselling aims to give borrowers the tools they need to not slip beneath the waves again. Pommells said the recidivism rate (the number of people who end up going through the process again) is 0.01 per cent. “It works,” she said.
Mulholland agrees that a big part of stemming the tide of insolvencies will be credit counselling programs. That’s why she worries about other useful programs that were cut off at the knees by the pandemic.
Beyond the emergency programs created during the pandemic, low income Canadians are at risk of missing out on regular benefit programs because of shutdowns. Nearly three-quarters-of-a-million low income Canadians rely on free tax clinics to file their taxes. About 400,000 did so before lockdowns in March closed them all. A small number have since reopened, but she says it’s likely that many people who use them still haven’t filed their 2019 taxes yet.
Liz Mulholland says she’s worried about people whose finances were in bad shape even before COVID-19. (Prosper Canada )
That means 35,000 low-income seniors aren’t eligible for the Guaranteed Income Supplement they would otherwise be entitled to. That’s up to $917 a month. And the Canada Child Benefit pays out up to $6,000 a year per child to Canadian families, but it too depends on tax filings. Even beyond emergency programs, those two could be “paying rent and putting food on the table,” Mulholland said.
It’s why Prosper is asking the federal government to restart funding for a whole slew of programs that target those who need it most. Against the backdrop of a $343-billion federal deficit, the ask is a relative pittance — $15 million to help 750,000 Canadians most in need access financial health services they likely already qualify for.
Mulholland says other countries, including the U.K., Australia and New Zealand, have spent far more on similar initiatives, because the cost of inaction far outweighs the cost of the programs themselves.
“If 20 per cent of your population is in this boat, that’s a real brake on your recovery [because] there is no consumer confidence. They are not going to be out there spending money,” she said.
“As my mother would say, you’re being penny wise and pound foolish.”
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
