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Study results show that taxes and student loans lead to an increase in unsecured debt

40 percent of Canadians filing for bankruptcy in 2021 had outstanding tax obligations, up from 33 percent a year earlier. Among these claimants, the average amount of tax owed was $19,776, up from $15,866 a year earlier. Insolvent taxpayers owed an average of $63,572 in total unsecured debt, 25.3% more than the average insolvent debtor.

Much of the increase in the percentage of claimants with tax debts in 2021 was due to obligations created by the federal government’s pandemic recovery benefits, the study’s authors suggested, which people received “with no or insufficient tax withholding” in 2020 .

“Additionally, many self-employed and small business debtors halted HST payments to manage cash flow during the pandemic,” the authors noted. “With longer lockdowns and reduced revenue, these people have not been able to make up the missed transfers.”

The study’s authors believe tax debt-related bankruptcies will rise in 2022 as Canada’s Revenue Commissioner ramps up collection efforts, which have slowed during the pandemic, and ends interest relief on Covid-19-related benefit obligations.

“With the 2021 tax filing deadline approaching, more Canadians will face an outstanding tax bill when filing their taxes, particularly those who have continued to receive Covid-19 benefits,” the authors said.

The percentage of bankruptcy applicants with student debt increased from 20.4% in 2020 to 22.3% in 2021. Among these applicants, the average amount of student debt owed was $17,005, up from $15,251 in 2020. Insolvent student loan debtors owed on average $52,112, 3.2% more than the average defaulter.

“The pandemic has worsened payback conditions for many millennials, who are more likely to work in precarious jobs impacted by Covid-19 lockdowns,” said the study’s authors.

The study found that credit card debt and personal loans made Canadians less likely to file for bankruptcy or consumer filing in 2021. Average credit card balances across all insolvent debtors declined 9.3% year-over-year, while personal loans declined 2.0%.

Earlier this month, the Federal Office for Bankruptcy Supervision reported that consumer bankruptcies fell 6.6% year-on-year in 2021, while business bankruptcies fell 11.0% over the same period.

In the consumer sector, bankruptcies were down 16.5% yoy, while consumer filings, which make up the bulk (69.5%) of consumer bankruptcy activity, fell just 1.5% yoy.

Tags : personal loans
Richard Dement

The author Richard Dement