05/14/2019 08:33 EDT | Updated 05/14/2019 08:49 EDT

Canadian Bankruptcies Jump At Fastest Pace Since Financial Crisis

Research suggests Canadians are under immense social pressure to spend money, and that's driving debt.

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Canadians are getting to a point where any negative hit to their finances can get them into trouble, a financial expert says.

Higher interest rates and a record-large debt burden are taking their toll on Canadians, with the number of households filing for insolvency hitting an eight-year high in the first quarter of this year.

There were 32,239 consumer insolvencies in the first quarter of 2019, according to the Office of the Superintendent of Bankruptcy Canada. That number that includes both bankruptcies and consumer proposals, an increasingly popular alternative to bankruptcy.

It's the highest number of insolvencies since 2011, and marks a 6.1-per-cent increase from a year earlier, the largest such jump since 2009, when Canadians were dealing with the fallout from the global financial crisis.

HuffPost Canada

And that statistic is likely just scratching the surface of the problem, said Grant Bazian, president of insolvency firm MNP Ltd.

Many households are in a "financial sweatbox" where they forgo basic necessities and contend with calls from debt collection agencies in order to avoid filing for insolvency, Bazian said.

"We know there are many Canadians experiencing this kind of financial distress," he said in a statement. "This isn't good news but it's something that needs to be discussed so we can eliminate the stigma associated with asking for help and if it is the best course of action filing a proposal or bankruptcy."

Watch: Tips for growing your savings on a low income. Story continues below.

Bazian cited research showing roughly half of Canadians don't believe they would be able to cover their expenses if they came up just $200 short in a given month. Much of the pressure comes from debt payments, which are eating up a near-record share of Canadians' incomes, at 14.9 per cent.

Household debt rose to yet another record high at the end of 2018, according to Statistics Canada, reaching $1.79 in debt for every dollar of disposable income.

Debt experts had been warning in recent months that the round of interest rate hikes the Bank of Canada began in 2017 would have an effect on consumer insolvencies in 2019 because rate hikes have a delayed effect on households' finances.

Earlier on HuffPost Canada:

With signs mounting that Canada's economy has slowed down in recent months, the Bank of Canada has signalled that it has put any further interest rate hikes on hold.

But Bazian says that likely won't change the direction things are headed in very much.

"It won't make a huge difference for people who have been under the gun for some time now," he told HuffPost Canada by phone.

It's just that people have been carrying so much debt for so long.Grant Bazian, MNP Ltd.

Bazian says he sees many consumers living off the cash flow created by borrowing, who aren't paying the down the debt principal. With household debt reaching yet another high at the end of last year, people are simply getting to a point where any negative hit to their finances can get them into trouble.

"It's just that people have been carrying so much debt for so long," he said.

Bazian adds he expects insolvencies to continue increasing this year, at least to some degree. Canadian consumer borrowing is in "a bit of a bubble, and it will burst regardless of interest rates," he continued.

The first thing we would recommend is be honest about where you stand.Monisha Sharma, Credit Karma

Canadians are under social pressure that is pushing them into debt, with 91 per cent of millennials admitting in a new survey that they have taken on debt to keep up with their friends.

According to the survey carried out by Qualtrics for Credit Karma, 45 per cent of millennials have taken on debt to cover the cost of vacations, and 36 per cent have borrowed to cover post-work dinner or drinks.

Nearly two-thirds of respondents say they keep their debt a secret.

"Those are bad credit habits," said Monisha Sharma, head of business development at Credit Karma."The first thing we would recommend is be honest about where you stand. Be open about what you can and can't afford."

Warning signs

If you have no savings and you are just managing from day to day, that's a sign you could be headed for financial trouble, Sharma said.

Other signs of trouble include paying all your expenses on a credit card and not keeping track of expenditures, or paying off one card with another.

For those with trouble staying fiscally disciplined, Sharma recommends a pre-paid credit card that effectively limits how much you can spend.

"No one is saying you can't go out and have fun. It's about creating a realistic budget."

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