The Bankruptcy Gap In Canada

Who’s More Likely To Declare Bankruptcy?

Filing bankruptcy in Canada is more common than you think and it affects Canadians from all walks of life. In 2012, more than 118,000 Canadians filed for insolvency in Canada. But who is at risk of filing bankruptcy or a consumer proposal?

Too Much Unsecured Debt

In a study about the average Joe Debtor released by bankruptcy experts Hoyes, Michalos & Associates, the average insolvent debtor owed $59,814 in unsecured debts, almost four times that of the average adult Canadian. That included credit card debt of $23,741, unsecured personal loans of $19,374 and other unsecured debt of $17,981. Those are huge numbers but what caused them? And how are they dealing with these debts?

What Triggers Insolvency?

The average insolvent debtor is very much like the average Canadian. They are hardworking people trying to provide for their families. To make ends meet they turn to credit as a temporary solution. Unfortunately their debts continue to accumulate. Then something happens and they find those debts are no longer manageable. Almost 40% of insolvent debtors listed income reduction or job loss as a cause of their insolvency. Almost one in five cited marital breakdown as a cause. Insolvent debtors are three times more likely to be divorced or separated than the average adult Canadian. Illness or injury can also have a devastating impact on a person’s financial situation. Sixteen percent of all insolvent debtors indicated that medical issues were a contributor to their insolvency.

Bankruptcy or Consumer Proposal

More insolvent debtors are choosing to file a consumer proposal as an alternative to bankruptcy. Fifty-six percent of all insolvency filings were consumer proposals. Legislative changes to the Bankruptcy and Insolvency Act increased the threshold for the eligibility of filing a consumer proposal from $75,000 to $250,000 of unsecured debts and this has resulted in more Canadians than ever choosing a proposal over a bankruptcy. There are, however, differences between risk groups.

Young debtors (18-29) and senior debtors (60+) are more likely than the average Joe Debtor to file bankruptcy. With a below average take home pay, their income level may not be sufficient to support a long term proposal to creditors. Female debtors are more likely than males debtors to declare bankruptcy and debtors with high student loan debt are also more likely to need to file bankruptcy.

In contrast, debtors between the ages of 30 and 59 and self-employed debtors are much more likely to file a consumer proposal. Whether because they own a home (you keep your assets, including a home, in a proposal) or because their average income is higher (increasing the cost of a bankruptcy) a consumer proposal was a better solution to dealing with their unsecured debt.

Whatever the solution, if you are one of the average Canadians at risk by carrying too much debt, talking to a reputable professional, such as a trustee in bankruptcy, is the first step to eliminating your debt problems. Contact a local trustee today to see how they can help.