After peaking in 2009 at over 150,000 consumer insolvencies in Canada, personal bankruptcy and consumer proposal filings appear to have leveled off at just over 118,000 in both 2012 and 2013. Our infographic at the end of this article highlights these and other facts about bankruptcies and consumer proposals in 2013.
What can we learn from these statistics?
First, it’s likely that after bankruptcy filings ballooned after the credit crises in 2008, and then declined during the subsequent economic recovery, filings have probably reached their low level for this cycle, and may begin to increase in 2014. Bankruptcy rates won’t fall forever, and any increase in interest rates could cause a significant increase in the number of people declaring personal bankruptcy.
Who’s To Blame?
When we dig deeper into the numbers we learn more about the causes of bankruptcy.
Not surprisingly, “poor money management” is the leading cause of bankruptcy, mentioned by over half of all debtors. Looking beyond this however, we can also say this means access to credit may be too easy. Our lending institutions may be as much to blame for some insolvencies as are the individuals themselves.
Other significant causes include job loss, marriage break up, and health problems.
Beware The Bump In The Road
The message here is that most of us can service our debt when “all systems are go”, but if we hit an unexpected bump in the road, serious problems may occur. It’s critical to “stress test” your debt levels. Make sure you can continue to make your debt payments even if you were off work for a period of time. If you can’t, you may have too much debt.
Perhaps the most interesting trend is not the dramatic reduction in the number of individual claiming bankruptcy, but the continued increase in those filing a consumer proposal.
In September 2009 the federal government changed the rules to make personal bankruptcy more expensive in some cases, and as a result an ever-increasing number of debtors are choosing to avoid bankruptcy and make a deal with their creditors by filing a consumer proposal.
As a result, personal bankruptcy filings have dropped by over 40%, from over 116,000 in 2009 to just over 69,000 in 2013. In contrast, consumer proposal filings have increased by 40%, growing from 35,331 in 2009 to 49,454 in 2013.
What Will Happen in 2014?
There are numerous regional differences, with filing rates increasing by 11% in Quebec, but declining by 7% in Ontario, so local economic conditions have a significant impact on bankruptcy filing rates as will changing conditions affect the future.
If interest rates increase, or if the economy weakens, bankruptcy rates across Canada could increase substantially. If the economy continues on its current pace it’s likely that there will be a moderate uptick in bankruptcy rates in most regions in Canada.
Either way, our best advice is to pay down debt during periods of economic strength, so that you are in a good position to deal with unanticipated events like a job loss or a weaker economy.