Consumer insolvencies in Canada have fallen to almost pre-recession levels as the Canadian economy continues to improve and interest rates remain at historical lows. Total consumer insolvencies (both bankruptcies and consumer proposals) fell to 9,528 files in June, 2013, almost a third lower than the previous June peak of 13,792 in 2009.
Regional Differences Tied To Economic Sustainability
Saskatchewan reported the largest drop with total annual consumer files down 13.7%. Alberta insolvencies fell 9.3%. This is in contrast to Quebec, where insolvencies are on the rise, up 5.8% for the 12-month period ending June, 2013. This is unsurprising given the continued economic growth experienced by Western Canada while the Quebec economy continues to struggle.
Consumer insolvencies tend to lag behind economic changes. As economic conditions decline, family incomes decline. People hang on as long as they can, then find their situation no longer sustainable, and we see a rise in insolvencies following an economic downturn. The opposite is true during recovery. Individuals who are unemployed have no income to deal with their debts. Once they return to work, creditors start calling and that is when those in trouble turn to a bankruptcy or consumer proposal for help. It is only after sustained economic growth periods that we begin to see a long term drop in consumer insolvencies.
Western Canada has experienced stronger economic conditions than much of Canada, resulting in higher, and more stable, family incomes. This, combined with low interest rates, has contributed to a significant drop in insolvencies in the West. If there is good news behind the Quebec numbers, it is that consumer proposals have increased while bankruptcies have declined, indicating that people are working and have been able to repay a portion of their debts.
Conditions Can Change
“From an economic perspective it is good to see some positive indicators once again.” says Edmonton Bankruptcy Trustee Baron Goth. “But I am always surprised how many people expect things will improve without making a changes. If we read these statistics and interpret them as a sign of economic progress I am worried people will forget that eventually interest must go up. We are currently seeing an overall decrease in insolvency rates, but our appetite for debt has not changed. So if Canadians don’t make any changes, allow their total debt load to steadily increase, when interest goes up there will be many people who will have to adjust to a sad new reality. Is this the calm before the storm? I am afraid it might be.”
What Can You Do?
Now is the time to reduce your debt, before conditions change, putting you and your family in financial risk. Look for ways to save money and increase the amount you commit to debt reduction each month. See if you can make an accelerated payment on your mortgage or car loan. Increase your payments on any credit card debt you carry to as much as you can bear. Reduce your debt now, before things become a crisis. If you need more help, talk to a Bankruptcy Canada Trustee in your area about your options.