Canadian bankruptcy statistics just released by the Office of the Superintendent of Bankruptcy show that Canadian consumer insolvencies grew by 3.5% in 2016. In total, 125,878 consumers filed a bankruptcy or consumer proposal in Canada last year.
What’s interesting is the dramatic difference across the various provinces. Canadian provinces who are dependent on oil as a significant economic driver saw a rise in unemployment. This rise in their 2016 unemployment led to a corresponding rise in consumer bankruptcies and consumer proposals. Consumer insolvencies increased 34% in Alberta, 35% in Saskatchewan, 24% in Manitoba and 32% in Newfoundland and Labrador.
Conversely, provinces with stronger economies and strong housing markets saw a drop in overall insolvencies in 2016. This is all despite a continued increase in overall consumer debt. Filings dropped nearly 7% in British Columbia while Ontario insolvencies declined just under 1%.
Housing prices have had a big impact on consumer insolvencies in provinces like BC and Ontario. If they remained working, many Canadians could keep up with their debt repayment in part to low interest rates. Canadians with higher debt loads who own a home could qualify to refinance their existing credit card debt at very low interest by using the equity in their home.
We saw a similar impact of high housing prices on the number of Canadians choosing to file a consumer proposal as an alternative to bankruptcy. Across Canada, consumer proposals grew by 7.4% while personal bankruptcies fell by 0.1%. In BC, the migration to proposals as an insolvency option was even greater. BC bankruptcies declined 17% while proposals increased 3.2%. A similar trend in Ontario saw proposals increase 3.3% and personal bankruptcies decline 5.9%.
That’s good news. A consumer proposal is a deal you make with your creditors, so for many people it’s better than a bankruptcy. A consumer proposal is a viable alternative to bankruptcy for those struggling with too much debt. In a consumer proposal, the debtor makes a legally binding debt settlement arrangement with their creditors to pay a portion of their outstanding debt. This arrangement can span up to five years or 60 months, but cannot take longer than that. The greatest advantage of a proposal over a bankruptcy is that the debtor is able to keep their assets if they can continue to make the payments on any loans secured by those assets (like a house mortgage).