Personal bankruptcies trending to new high in 2024, with Ontario leading the wave

2024 bankruptcies and proposals surpassed 100,000 in September, are likely to end year 40,000 above 2021, before rate hikes

Personal bankruptcies and bankruptcy proposals are trending toward 140,000 in 2024, with increases in every province since 2021, the year before dramatic hikes to interest rates.

The wave of bankruptcies is largest in Ontario where personal bankruptcies and proposals are heading to over 50,000 in 2024, up 70 per cent from about 30,000 in 2021.

September’s bankruptcy data was released from the Office of the Superintendent of Bankruptcy released last week.

The OSB reported under 90,000 personal bankruptcies and proposals in 2021, the first full year before the Bank of Canada began hiking interest rates. Bankruptcies and proposals surpassed 100,000 in 2022 and 122,000 in 2023.

The Bank hiked rates 10 times starting March 2022, raising its overnight rate from 0.25 per cent to 5.00 per cent in July 2023. It has since cut rates to 3.75 per cent.

As of the end of September 2024, over 100,000 Canadians had filed their bankruptcy or a bankruptcy proposal.

The outcome highlights the downstream cost of governments unwilling or unable to limit price hikes in fuel, food and rent, which have been major drivers of inflation.

As the last resort to control rising prices, the central bank has dramatically increased interest rates to lower disposable income and cut consumer demand.

Rate hikes put the hardest hit on large borrowers, such as those holding big home mortgages, and likely explains why the largest bankruptcy increases are in Ontario and British Columbia, where housing is expensive and mortgages are huge.

In February 2022, the month before interest rate hikes started, the average selling price of a house peaked at $1,295,000 in BC’s Lower Mainland and $1,335,000 in Ontario’s Greater Toronto Area. Average prices have since fallen in both markets.

Bankruptcy is another channel through which a housing crisis contributes to broader economic malaise by imposing financial loses on lenders and suppliers.

Increases in BC and Ontario come from low per capita rates

Despite the large increase in BC and Ontario bankruptcies, British Columbia continued to have the lowest per capita rate of bankruptcy or proposals while Ontario is fourth from the bottom of the list.

In 2024, the highest per capita rates were in Nova Scotia, Newfoundland and Labrador, New Brunswick and Alberta.

Newfoundland and Labrador and New Brunswick have had the lowest increase in bankruptcies since 2021.

The economic centre of those filing bankruptcy due to high borrowing costs appears to quite different than that of those in bankruptcy due to other major reasons, such as personal health crisis, business failure, family dissolution or long-term job loss.