“And it doesn’t ring. And we wonder what’s going on? “
When it comes to consumer bankruptcies, business is down – fewer people are filing now than they were before the pandemic started, said Brzezinski, a partner in Toronto-based law firm Blaney McMurtry and a specialist in reorganization. of business, insolvency, liquidation and bankruptcy. .
Indeed, Douglas Hoyes, licensed insolvency trustee and co-founder of Toronto-based Hoyes, Michalos & Associates, predicts that when the numbers come in April, personal bankruptcies will likely be down about 50% from the last year.
The income of many has fallen, the debt is probably increasing. “Obviously, there is going to be a massive spike in bankruptcies: that would be conventional wisdom,” said Hoyes.
“Well, sort of. ”
Instead, however, these actions are deferred. Why? Part of the reason is that few companies are putting pressure on customers to pay their debts.
“Many consumers live in an unreal world, where the money they earn is not required … to pay off the debts they normally would have to pay,” said Brzezinski. “The question is, when will everything fall apart? “
Insolvency was on the rise before COVID-19 hit, and Canadian debt-to-income ratios were near their peak, said Andre Bolduc, board member of the Canadian Association of Insolvency Professionals and restructuring.
“One of the main causes of personal insolvency is a high level of consumer debt associated with an unexpected life event,” said Bolduc. “Canadians already had near record debt levels before COVID and COVID-related job losses were the tipping point for many who were already struggling.
MNP Ltd.-based Calgary consumer debt index released in March found that 46% of Canadians say they are on the verge of insolvency and at $ 200 or less they cannot pay all their bills each month. This is a jump of 10 percentage points from the previous survey in December. The survey was conducted for MNP by Ipsos, which it described as more or less 2.5 points accurate, 19 times out of 20, if all Canadian adults were interviewed.
“Economic survival mode”
“Our results show how vulnerable Canadian households are to income disruption. In the coming months, we are likely to see two crises unfold: the global pandemic and the bursting of the Canadian consumer debt bubble, “said Grant Bazian, president of MNP, said in a statement.
“Those who were already heavily in debt are in economic survival mode,” he said.
Another survey released last month by DART & maru / Blue found that of those polled, 4% said they were “very close” to declaring bankruptcy. This would translate into approximately 1.3 million Canadians. Nine percent said they were close enough.
“13% of the total population is in critical condition,” said pollster John Wright, who is a partner with Dart C-Suite Communicators.
“These are incredibly tragic and heartbreaking numbers to look at,” he said. “If you ask them how much money you have … the answer is nothing, zero. “
Analysts say the current stay of bankruptcy filings is caused by a number of factors.
Many laid-off people can take advantage of the Canada Emergency Response Allowance, which, while not a huge sum of money, is enough to meet daily expenses, said Brzezinski .
Banks have put down mortgage deferrals, saving people from having to pay their principal and interest. And some are deliberately not applying for defaulted loans, he said.
“There is no point in trying to collect money when people have no income,” he said. “Not all, not all the time, a lot of [the banks] have relaxed. ”
The government has also postponed or extended the deadline for filing income tax returns and those who owe income tax.
And with so many unemployed, there are no wages for garnishment, so people don’t need to go bankrupt to prevent these wages from being drawn, Hoyes said.
“So if I am not working, I am what we call creditor-proof,” he said.
What that all means, said Brzezinski, is that we are going through what he calls “the big carryover,” in which creditors do not apply their claims as much as they normally would.
“But when will the taps turn back on when it comes to payments?” No one knows for sure. “
The end of August
It could be around the same time that the income tax is due, he said.
“We need a domino to fall. And that could happen in late August, when the CRA actually starts asking for income tax or tax arrears payments, “he said..
Hoyes agreed that, as things gradually start to return to normal, it is reasonable to expect a “significant spike” in bankruptcies, likely in the fall.
“By the time we arrive in the fall, the collection agencies are back to work. Banks want their money. Emergency services have ceased. So if in September and October we saw a peak of 20, 30, 40, 50% in bankruptcy, that would not surprise me. ”
So far, many small businesses have been able to prevent this from happening thanks to the government’s wage subsidy program and rent and tax deferrals, said Brzezinkski.
Difficult to liquidate
“So companies are also suffering the big delay. “
For example, if a bank has a loan on equipment in a restaurant, it would be difficult for the institution to sell and liquidate that material.
“There are ultimately no retail sales where people can get in … You can’t even get into a mall, let alone buy this product in stores. Banks are therefore also hampering retail trade.
“So we’re going through this kind of fantastic calm before the storm. “
But the storm, when it hits, could be “very bad,” said Brzezinski.
“How many small retail stores, how many restaurants, what proportion of the hospitality industry has been permanently destroyed and which we will never see again? I would say it’s just catastrophic.
“We are going to see companies that will not survive. Many, many businesses that will not survive. “
Brzezinski said there could be some proposals, in which a company offers its creditors five or 10 cents on the dollar.
“They can still survive. I see that the majority of small businesses do not survive bankruptcy. I see them ending. “