The pandemic unexpectedly saved thousands from financial ruin. But there's a reckoning on the horizon

This story is part of The Big Spend, a CBC News investigation examining the unprecedented $240 billion the federal government handed out during the first eight months of the pandemic.

As the COVID-19 lockdown ruled the day this spring, Rod Gilroy, a 37-year veteran of the real estate industry in Amherst, N.S., figured bankruptcies in the area might go through the roof.

Alison Lair at the local YMCA braced for mass evictions. Sarah MacMaster of the family resource centre worried about a "tidal wave" of mental health crises. In nearby Sackville, N.B., food bank officials wondered how they would possibly cope.

Then something unexpected happened. Nothing. The phone lines were largely silent. Few people reached out for help. Instead of skyrocketing, insolvencies dropped like a stone. Many of the most financially vulnerable, it seemed, were doing OK.

"It was kind of eerie, really," said Shirley LeBlanc, co-chair of the Society of Saint Vincent de Paul in Amherst, a Catholic charity that helps low-income people.

Hidden behind the dire number of COVID-19-related job losses is a paradox: the pandemic helped thousands of debt-ridden households in Atlantic Canada avoid financial collapse, at least temporarily. What's more, many low-wage workers were better off after losing their jobs.

It's also a contradiction with a giant caveat: the financial distress that was expected at the beginning of the pandemic may instead wallop these households near its end.

Amherst, in the province's northwest, bills itself as the gateway into Nova Scotia from New Brunswick. Major employers include the aerospace and packaging industries. The downtown area is dotted with a handful of impressive sandstone buildings and large Victorian-era houses, a nod to a booming manufacturing past.

But the town and surrounding Cumberland County have alarming levels of child poverty. In recent years, Amherst and the rural area to its east have had one of the highest consumer insolvency rates in Atlantic Canada.

So when the economic toll of pandemic restrictions became apparent in the spring, it was deeply worrisome.

But a combination of factors kept many above water: Banks offered mortgage and credit card payment deferrals. Cooped up at home, many people spent less. Government aid programs kept money flowing into households.

'A big eye-opener for people'

Melanie Cove, a single mother of two boys in Amherst, was laid off from her full-time job at a family resource centre in April and spent five months on the Canada emergency response benefit (CERB). She was one of more than half-a-million Atlantic Canadians to receive the federal government's $2,000-a-month emergency benefit.

The 37-year-old soon found herself in a surprising position: The benefit was greater than her monthly take-home pay. She used the small windfall to enrol in online courses, fix her car and install some siding on her house.

"A lot of people, in this community and throughout Canada, make far less than that," she said of CERB. "My hope was that this would be a big eye-opener for people who didn't see how somebody could even live off that to the fact that a lot of people in our country live on a lot less."

Thousands of people would have been in similar situations. According to 2016 census data, nearly a quarter of Atlantic Canadians who worked made between $5,000 and $20,000 a year — less than CERB when broken down monthly.

As jobless numbers began to soar in April, bankruptcies did the opposite, plummeting across the country, and particularly in Atlantic Canada. Four thousand fewer people in the region filed for insolvency in the first six months of the pandemic than in the same period the year before.

In Nova Scotia, there were fewer consumer insolvencies in May than in any other month in the last 20 years.

"Originally, it doesn't seem to make any sense because of the situation," said Gilroy, whose brokerage went from dealing with about two bankruptcy foreclosures a week to just two or three in all since March. "You would think that the numbers would be increasing in that department drastically instead of decreasing."

In New Brunswick, there was an early uptick in people turning to food banks, mirroring the run on toilet paper and flour in grocery stores. But then it slowed.

Food bank usage was down "across the board" this summer, by as much as 25 per cent in some locations, according to Chantal Senecal, executive director of Food Depot Alimentaire, which supports 60 food banks in New Brunswick.

She attributes some of that to CERB and argues the success of the benefit is proof that a guaranteed living wage — an idea that has gained traction during the pandemic — works.

"People who were normally coming to see us every two weeks for probably the majority of their food were now not coming at all. And they're getting food," she said. "We can only assume that they're doing their groceries. And how amazing is that? That's what we want."

CERB has also been criticized, however. In May, P.E.I. Premier Dennis King said he had raised concerns with the prime minister that such programs offered people incentives to stay home rather than return to work.

Poverty and debt have not disappeared, of course. Many of those who welcomed, with some disbelief, the financial resiliency of the spring and summer now worry about a reckoning.

Since CERB ended in October, as Ottawa moved to a modified EI system and different benefits, there's been an uptick at many food banks. A second wave of the virus is adding another layer of uncertainty.

Household debt is still high. Banks will eventually come looking for their money, and government benefit programs have expiry dates next year. All this, some warn, could lead to an avalanche of bankruptcies and debt problems.

CERB taxes may surprise

John Eisner, president of the non-profit Credit Counselling Services of Atlantic Canada, said debt counsellors and bankruptcy trustees are already seeing more people. By the second quarter next year, he suspects his organization "will be busier than we've probably ever been in our history."

And there may be another culprit — CERB itself. The program that raised the incomes of many low-wage earners could next year bring a bout of financial hardship to the same people.

The benefit is taxable, and next spring recipients may owe hundreds, if not thousands, to the Canada Revenue Agency. The fear is that many have not saved that money. For some low-wage earners, it may be the first time in their working lives they have owed tax.

Still others who received CERB but were retroactively found not to be eligible could be forced to pay it back even if they honestly believed they were entitled to the benefit.

"I think tax time is going to be very hard," said Lair, the manager of community development at the YMCA of Cumberland. "When people already can't afford housing or food or clothing or those basic needs, if the government starts asking for money back, I don't know where it's going to come from."

The CRA said it has suspended new debt collection during the pandemic. In a statement, a spokesperson said the agency will work with people to come up with a manageable plan for them to pay taxes or make repayments. For those unable to repay ineligible CERB amounts, the CRA said it will follow up down the road to see if their financial situations change.

But the agency can also flex its muscles. It can tap into credits and refunds and take legal action seeking the garnishment of wages.

Cove, who was on CERB but has returned to work, said she and many others typically rely on tax refunds to get their household budgets back in order after the expensive home-heating season.

She recently got her first fill-up of furnace oil of the season, an expense that brought fresh financial anxiety. She said many people who received CERB likely have little idea how much they should be saving to cover taxes.

"I think a lot of people are going to worry about that tax time because it's never been something that they've had to consider before. It's routine. It's basic," she said. "Living under a certain amount always usually meant that there would be a return. And a lot of people, unfortunately, rely on that."