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Bankruptcy Rate Drops in Canada

by Doug Hoyes

The bankruptcy rate in Canada dropped in 2010, according to statistics recently released by the Office of the Superintendent of Bankruptcy. That’s good news, right? Yes and no.

First, let’s review the numbers. In 2010 a total of 135,008 Canadians filed a consumer proposal or personal bankruptcy. That’s an 11% drop from the 151,712 who filed in 2009. That’s a drop of 16,704 people, and yes, that’s good news. Fewer Canadians declared themselves insolvent in 2010. Now let’s take a look behind the numbers.

Personal Bankruptcy Rate Falls, By Consumer Proposals Increase Dramatically

Personal bankruptcies dropped from 116,381 to 92,694, a drop of over 20%. But consumer proposal filings increased by almost 20%, increasing from 35,331 to 42,314.

So why did personal bankruptcy filings drop, while consumer proposal filings increased? Two reasons:

First, the economy in Canada was somewhat better in 2010 than it was in early 2009, as we were still in “recovery mode” after the credit crisis and stock market correction in late 2008. A better economy generally means lower unemployment, higher consumer spending, and generally fewer personal bankruptcies. So it’s not surprising that the total number of insolvencies (bankruptcies and proposals) dropped, and that the number of personal bankruptcies also decreased significantly.

It’s also not surprising that, in a good economy, Canadians in debt are more likely to choose a proposal over bankruptcy if they can’t pay their bills. In a proposal you make a payment each month, and that money is distributed to your creditors. If you don’t have a job or a source of income, a proposal probably isn’t possible. If you are working and do have an income (just not enough to pay your bills in full), then a consumer proposal is a great solution. Clearly there is a greater chance of Canadians having jobs during good economic periods, so during recessions proposal filings are likely to drop, while in good times they may proportionately increase.

Second, the government changed the bankruptcy rules in 2009, making bankruptcy more expensive for Canadians with surplus income. As a result, in 2010 more Canadians chose to file a consumer proposal as a way to avoid bankruptcy.

So yes, it’s good news that bankruptcy numbers are down, but you have to take the numbers with “a grain of salt”, since part of the decrease in bankruptcy filings was due to a change in the rules.

Also, let’s not forget that debt in Canada remains a ticking time bomb, and massive credit card debt continues to lead to bankruptcy in Canada. Year to year bankruptcy numbers may rise and fall, but over the long term, as long as our debt remains high, Canadian will continue to file bankruptcy.

If you are interested in 2010 bankruptcy statistics for other areas of Canada, here’s list of other articles on bankruptcy statistics

If you are experiencing financial problems and think bankruptcy might be the answer, use our free debt options calculator to review your options, and then contact a licensed bankruptcy trustee today for a free initial consultation, and be sure to ask about a consumer proposal, the number one alternative to bankruptcy.

Posted on Monday, March 28th, 2011
Filed under: bankruptcy Canada
posted by Doug Hoyes @ 7:44 am No Comments

Why are More Seniors Filing Bankruptcy in Canada?

by Doug Hoyes

This week the Office of the Superintendent of Bankruptcy released statistics stating that an increasing number of senior citizens are filing for bankruptcy in Canada. Here’s a quote from the report:

From 1989 to 2009, the proportion of insolvent consumers between 18 and 34 years of age has fallen steadily (from 12.9 percent to 4.4 percent among those 18 to 24 years of age and 43.0 percent to 22.3 percent among those 25 to 34 years of age). Over the same period, the proportion of insolvent consumers among older age groups has increased (from 11.3 percent to 24.7 percent among those 45 to 54 years of age and among those 55 years of age and above the proportion has more than quadrupled from 4.6 percent to 20.6 percent).

So why are more seniors declaring personal bankruptcy?

Doug Hoyes, Bankruptcy Trustee

Doug Hoyes, Bankruptcy Trustee

As a licensed bankruptcy trustee helping people file bankruptcy in Ontario, I have a number of thoughts on why the percentage of seniors filing bankruptcy is increasing.

First, as every resident of Canada is aware, we are in a recession. A recession hurts everyone. It’s possible that in the current economic downturn more seniors have lost their jobs, or had their incomes reduced, leading to serious financial problems. Often when a company needs to cut back, they cut their highest paid workers, which often are their older workers.

Second, a growing number of Canadians in their 40′s, 50′s and 60′s are carrying mortgages and other debts into retirement. Twenty or thirty years ago Canadians typically retired with little or no debt; they paid off their mortgage before they retired. That was possible because by the age of 65 most Canadians were able to pay off their debts.

However, today, it’s not uncommon to be laid off while you are still in your 40′s or 50′s, and if you are unable to find a similarly well paying job, you may be forced into early retirement before you are able to pay off your debts. That’s why it’s increasingly important to keep your debts as low as possible, in the event your job situation unexpectedly changes.

Third, many seniors assumed that their house or other real estate would be their “retirement fund.” They assumed that when their children were grown and they themselves retired they would sell their house and move to a smaller house, pocketing the difference. Unfortunately with the weak real estate market over the last two years house prices in many areas of Canada have declined, so seniors cannot sell their house for as much as they had hoped.

Finally, I meet with a significant number of seniors who were good money managers, and had little or no debt for most of their lives, but then they go into debt to help their adult children. If you are 60 years old with no debt and a paid off house, and your 30 year old son or daughter loses their job, and they have a young family to support, what do you do? Many parents help their children, and often they help them by re-mortgaging their house, or getting a line of credit. If your child is not able to pay you back, the senior, on a reduced income, is left with more debt than they can handle.

Does this mean you shouldn’t help your children or other friends and family when they have financial problems? No, if you want to help, you should, but it’s important to help with cash, and not to incur excessive debt to help others.

What’s the solution?

First, we should all strive to have little or no debt. You may not have a lot of savings when you retire, but if you retire with no debt you will probably be able to survive with your company and government pensions.

Second, seniors should be careful to only help others within their means; don’t risk bankruptcy for yourself by borrowing excessively to help others.

If you have more debt than you can handle, check out our free, interactive debt options calculator that calculates your different debt management options. It may be possible to work through your debts on your own, or perhaps file a consumer proposal to avoid bankruptcy, but professional advice is wise to fully explore your options.

Posted on Monday, October 18th, 2010
Filed under: Bankruptcy Alternatives andbankruptcy Canada andConsumer Proposal
posted by Doug Hoyes @ 5:34 am No Comments

Credit Cards: The Fast Route to Bankruptcy in Canada

by Doug Hoyes

What’s the fastest way to accumulate so much debt that you have no option but to file bankruptcy in Canada? As a bankruptcy trustee I have handled thousands of personal bankruptcy filings over the last two decades, and the answer to that question, based on my experience, is easy:

Douglas Hoyes, Bankruptcy Trustee

Credit cards.

If you want to get into serious financial trouble, excessive credit card debt is a sure fire way to invite financial disaster.

Two years ago my firm did a study of “Joe Debtor”, the average person who declares bankruptcy in Canada. Our study showed that 93% of Canadians that file personal bankruptcy or a consumer proposal have credit card debt, and the average they owed on their credit cards at the time of filing was just under $20,000. (With other debts, like taxes and lines of credit, the total unsecured debt was just over $50,000).

The facts are clear: it’s unlikely that someone with no credit card debt will have a need to file bankruptcy. The more credit card debt you have, the more likely it is that bankruptcy may be in your future. Why is that?

First, in the past, credit cards were easy to get. We all remember the “boom times” up to 2008, when many of us received numerous credit card offers in the mail each week. We were all “pre-approved” for a $10,000 gold, or platinum, credit card with a “low introductory” rate. Remember? You said “great, I can transfer my balance from my high interest rate card to the low rate card, and save money!” And you did.

But then your car broke down and you needed money for repairs, or you were off sick from work, or some other problem occurred and you needed money. You had unused credit on the credit card you just paid off, so you used it. But now, of course, you have a problem: instead of just owing money on one credit card, you are now carrying a balance on two cards. That puts you in a cash flow squeeze every month.

Then you realized that the “low introductory rate” was only temporary, and after six months your interest rate went way up, so now you are paying even more each month.

High interest rates are a problem, but for most people who declare bankruptcy their financial problems became critical when something happened in their lives: job loss, a marriage break up, or perhaps a health issue that caused them to miss work and led to reduced income.

It’s now 2010, and ever since the “credit crisis” of 2008 the flow of credit card offers in our mailboxes has slowed to a trickle, or disappeared entirely. The days of easy access to credit are over, at least for now.

Even more challenging for Canadians with credit card debts is the reality that credit card issuers are tightening up their credit requirements. Based on the stories I have heard over the last few weeks from the dozens of people in debt I meet with each week, it appears that the credit card issuers are in the process of “culling” their credit card portfolios. They are identifying higher risk clients, and raising their interest rates to encourage them to go elsewhere. Here’s a typical story from a lady I met with this week, with her name changed to protect her privacy:

Jane is single, and has carried a large balance on her ABC Credit Card for many years. Over the years ABC has gradually increased her credit limit, and for many years they offered her what she believed was an attractive interest rate of 9.9%. Her minimum payment was about $430 per month, which was manageable based on her income. Last week she got her monthly statement, and the minimum required payment was increased to $750 per month.

She assumed that it was a mistake, so she called ABC Credit Card Company, and they advised her that no, it was not a mistake. Due to changes by the “regulatory board” her interest rate was now much higher, resulting in a higher minimum monthly payment.

When I met with her I explained that I had never heard of the “regulatory board” (although I am familiar with the new credit card regulations), but it’s easy to see what the credit card company is doing. The balance owing on her credit card was over $20,000; it is by far her largest debt. On her current income it is unlikely that she will ever be able to repay the debt. The credit card company realizes this, so they are attempting to get rid of her as a client before she defaults on the amount owing. Their hope is that her credit is still good enough to allow her to borrow from someone else, and repay them.

Unfortunately for Jane, she has no assets to pledge as collateral for a loan, and she has no family members that are able to co-sign for a loan. Based on a review of her situation, she decided that her best option is to file a consumer proposal, where she will offer her creditors approximately a third of the full amount owing, to be paid over the next four years (the amount offered varies based on your income and financial situation). With a consumer proposal Jane will no longer have any credit cards, and her credit score is damaged, but she will have a manageable monthly payment, and in four years (or less) she will be out of debt. For Jane, it’s the correct solution.

Is it the correct solution for the credit card company? It could be argued that they would be better off had they not raised her interest rate; she would have continued to muddle along, and they make have collected more money over the next few years. However, they decided that they wanted to reduce their risk, so Jane responded by filing a consumer proposal.

If you want to be proactive and deal with your credit card debt before your credit card company raises your rates, check out our free, interactive debt options calculator that tells you what it will cost to deal with your debts. The sooner you take action, the sooner you will be free of high credit card interest rates.

Posted on Monday, September 27th, 2010
Filed under: bankruptcy Canada andConsumer Proposal andDebt Options
posted by Doug Hoyes @ 3:15 am No Comments

Avoid Bankruptcy in Canada and Survive the “False Economy”

by bgandossi

Bruce Gandossi, Bankruptcy Trustee

Bruce Gandossi, Bankruptcy Trustee

My name is Bruce Gandossi. I’m a chartered accountant and licensed trustee in bankruptcy with Sands & Associates in British Columbia. A few months ago I wrote an article asking the question: Will the Vancouver 2010 Olympics Impact Personal Bankruptcy Rates? Here’s what I said a few months before the Olympics about bankruptcy in Canada:

We may have a mini boom during the Olympics, as all of our hotels and restaurants will be full with visitors from around the world. But after that, incomes won’t be rising, and house prices won’t be rising, so debtors won’t be able to rely on overtime or a rising real estate market to deal with their debts.

As predicted, Vancouver residents were very busy in the months leading up to and including the Olympics. I live in Vancouver, and I work from my Vancouver bankruptcy office, and I can tell you from first hand experience that the Olympics were fantastic. Like many other Vancouver residents, I had the pleasure of experiencing the Olympics first hand. I went up to Whistler the week before the Olympics to see the preparations for skiing. I attended the opening ceremonies, and they were unbelievable. I watched the speed skating on the big oval in Richmond (my firm also has a bankruptcy office in Richmond), and I saw short track and hockey games in Vancouver.

Are we suffering a “hangover” from the Olympics? I’m happy to report that no, we Vancouver residents are not suffering a large let down. The Olympics were great, and we were happy to be a part of it.

However, there is no doubt that the Olympic jobs are now gone, and we are no longer living in the boom times created by the Olympics.  Obviously the end of the job boom can reduce income, and increase the risk of personal bankruptcy in Canada.

I’m not an economist, but I do meet with regular, hard-working Canadians every day, and based on what they tell me I worry that many are living in a “false economy.” The Olympics certainly helped us here in Vancouver, but all across Canada, and the world, government stimulus money has also helped bolster the economy, and keep our economy from sliding into an economic depression.

Government economic stimulus is somewhat like credit card debt. I use the credit card today to buy what I want, and I feel great. But, at some point in the future, I will need to repay what I borrowed, and that’s the “time of reckoning” that is not yet here. I hope the economy continues to recover, but as a trustee in bankruptcy I’m also a realist. We hope for the best, but prepare for the worst.

There is some great news when it comes to dealing with debt. Over the last eight months I have personally witnessed an increasing number of Vancouver residents choosing to avoid filing bankruptcy in Canada to deal with their debts; instead, they are choosing to file a consumer proposal. Recent changes in the rules make filing a consumer proposal a more attractive option for many Canadians. In a proposal I help you negotiate a settlement with your creditors, where you pay perhaps a third or a half of the total amount you owe over a three to five year period, and your creditors agree to write off the rest. If the creditors accept your proposal, you avoid filing bankruptcy in Canada. I tell people they need three things going for them to file a proposal:

  1. Age
  2. Health
  3. Income

First, you need to be old enough to understand a proposal, and young enough to have the time to make the payments over the next three to five years.

Second, your health should be sufficient so that you know you will be working for the next three to five years so that you can make your proposal payments.

Finally, to make payments you need a stable source of income. If you expect to get laid off next month, a proposal may not be your best option.

As my fellow residents of Vancouver look back fondly on our Olympic experience, I encourage everyone to look ahead to their future, and if you find you have more debt than you can handle, consider a consumer proposal as an option to deal with your debts. We will meet with all debtors initially without cost to assist you in the assessment of your options. Please contact a trustee today for your free initial consultation, and find out what options will work best to help you deal with your debt.

Posted on Monday, May 24th, 2010
Filed under: Bankruptcy Alternatives andbankruptcy Canada andConsumer Proposal andDebt Options
posted by bgandossi @ 6:05 am No Comments

Consumer Proposal: Will My Creditors Accept My Proposal?

by Doug Hoyes

As we have discussed many time on the Bankruptcy Canada Trustee Talk blog, a consumer proposal is a great alternative to filing bankruptcy in Canada. The concept is simple: instead of going bankrupt, you offer to pay a portion of the amount owing to your creditors, and if they accept you avoid bankruptcy.

Douglas Hoyes, Canada Bankruptcy Trustee

Douglas Hoyes, Bankruptcy Trustee

But why would a creditor accept a consumer proposal? If you owe $50,000, why would they accept a deal where you repay perhaps only $20,000?

There are a number of reasons why a creditor would accept a consumer proposal:

First, and most obviously, a creditor would accept a proposal if they expect to generate more money in a proposal than they would generate in a bankruptcy. Obviously if they were going to get less money in a proposal, they would not accept it. Here’s a simple example:

Joe has $50,000 in debt. He supports his wife and three children, and after paying his normal living expenses like rent, utilities, food, transportation and other costs Joe only has $500 per month available to repay his debts. The minimum payments on his credit cards and other debts are $1,300 per month, so he is falling behind.

Joe met with a trustee, and the trustee calculated that based on Joe’s income and family size he would be required to pay $600 per month in surplus income payments, and his bankruptcy would last for 21 months, so Joe would pay approximately $12,600 during his bankruptcy. He’s worried that he won’t be able to afford the $600 per month in payments.

Joe’s trustee suggest an alternative: instead of going bankrupt, Joe could offer a consumer proposal of $300 per month for five years, or $18,000 in total.

Obviously Joe is paying $18,000 in a proposal, instead of $12,600 in a bankruptcy, but Joe is happy with that plan. He wants to avoid bankruptcy, and he wants to repay as much as he can to his creditors, and for him, $300 per month in a consumer proposal is much more manageable than $600 per month in a bankruptcy. Joe decides to file a proposal.

In this example the creditors are likely to accept the proposal because they are getting more in the proposal than they would get under any other alternative.

Whether or not the creditors actually accept the proposal will depend on a number of factors, including Joe’s prior history with the creditor, and the individual criteria that each creditor uses to decide on how they will vote on a proposal. A consumer proposal administrator can explain the likely chances of success for you at your no charge initial consultation.

Second, most creditors want to be seen as “helping the little guy.” Big banks and credit card companies in Canada don’t want to get a reputation for refusing all reasonable settlement arrangements, so if a consumer proposal is reasonable, most of them will accept it.

Finally, creditors want certainty. In a bankruptcy the amount of money they will realize will increase or decrease depending on the bankrupt’s income during the process. In a consumer proposal, once the proposal is approved, the payment amounts are fixed. There is certainty. Each creditor knows what they will get. That’s another example of how a proposal is a “win-win” solution. You have certainty because you know what you are required to pay each month, and your creditor knows what they will be receiving. There are no surprises.

Is a consumer proposal the right solution for you? The answer depends on the size of your debts, who you owe the money to, what you own, and what you can afford to pay each month. Try our free debt options calculator to review your options, and then contact a trustee to arrange for a free, no obligation initial consultation.

Posted on Monday, May 3rd, 2010
Filed under: Consumer Proposal
posted by Doug Hoyes @ 5:29 am No Comments

Consumer Proposal: The Best Way to Avoid Bankruptcy in Canada

by Doug Hoyes

Doug Hoyes, Bankruptcy Trustee

Doug Hoyes, Bankruptcy Trustee

This is a website devoted to discussing all aspects of bankruptcy in Canada, but today we will discuss the opposite of bankruptcy. Today I present my Top Three Ways to Avoid Bankruptcy in Canada.

Why would I, a bankruptcy trustee, want you to avoid bankruptcy? Because I strongly believe that bankruptcy should be a last resort, a strategy to be used only after all all other options have been evaluated and eliminated. I take every opportunity to encourage all Canadians to explore all financial options before making a decision. This week I was interviewed by the Globe and Mail for a story on How to Avoid Filing for Bankruptcy, and again I made the comment that bankruptcy is a last resort.

Why should you consider all options? Because there are many scams and unscrupulous people that will tell you they can help you avoid bankruptcy, but many times they will simply just take your money. You can read more in our article on Debt Management and Debt Settlement Plans: Scams, or a Good Alternative to Bankruptcy in Canada?

So what are my Top Three Strategies for Avoiding Bankruptcy in Canada?

3 Get help from family or friends. This is perhaps the most over-looked strategy. I have had hundreds of people over the years tell me that they are so embarrassed about their financial situation that they are afraid to discuss it with their family or friends. I’m not suggesting you should tell everyone you know that you are having financial trouble, but reaching out to your family or closest friends is often a good solution. Many times I have encouraged people, particularly younger people, to talk to their parents. While their parents may be disappointed that they are in financial trouble, they will often also try to work with them to solve their problems.

I’m not suggesting that you should borrow money from family or friends. Borrowing money is a good way to lose friends, and an even better way to make Christmas dinner very uncomfortable. What I am suggesting is that you should ask for advice from your family and close friends.

If you don’t ask, you don’t know how people can help. Perhaps a relative can help you find a better job, and with more income you may be able to repay your debts on your own. Perhaps a friend has an extra room at their house; you could rent a room and reduce your living expenses, which will free up cash to help you deal with your debts. Moving back in with your parents may not be fun, but as a temporary measure while you get back on your feet it may not be a bad solution.

Even if they can’t help you directly, getting some advice and empathy from a trusted family member may help you decide on your next steps.

2 My second best strategy for avoiding bankruptcy is to fix it yourself. In fact, this is the strategy used by the vast majority of Canadians who experience money problems. If friends and family can’t help, and if you don’t want to file bankruptcy, you need to take matters into your own hands, and attempt to fix the problems on your own. Here’s how:

Start by making a personal budget. Your budget should list all of your expenses each month. Some will be easy, like your rent and car insurance, because they are the same each month. To ensure that you don’t forget any, review your bank statements and credit card bills for the last few months to see where you spend your money. That should give you an accurate picture of your monthly spending. There are lots of on-line budget tools that can help, like Calendar Budget, an on-line tool where you enter your purchases each day, on a calendar. There are lots of budgeting tips on line as well.

Once you have a list of your expenses, review it. What can you cut? Can you reduce or eliminate your cable bill? Car pool to work? Make your own coffee? Once you see your expenses on a list, you can take steps to cut your expenses. That will tell you how much money you can free up to repay your debts faster.

Your debts are the final piece of the puzzle: Make a list of all of your debts, and arrange them from highest interest rate to lowest, so that the top of the list has your most expensive debts. Those are the debts you want to repay first.

Now, fix it yourself by making a plan to take whatever cash you can free up each month and apply that to your highest interest rate debts first. As one debt gets paid off, use that extra money to attack the principal on the next highest debt, and so on until all of your debts are repaid. If you can keep your expenses as low as possible, you may be able to repay all of your debts on your own.

1 But what if, even with drastically reducing your expenses, you still have more debts than you can repay on your own? You need outside help, and that brings me to my top strategy for avoiding bankruptcy in Canada: filing a consumer proposal. A consumer proposal is a legally binding deal that a consumer proposal administrator negotiates with your creditors. If it’s accepted, you make one monthly payment, your debts are dealt with, and you avoid bankruptcy.

A proposal will work best if you have a job, or a stable source of income, so that you can commit to monthly payments. The good news is that, in most cases, a consumer proposal can be negotiated for less that the full amount owing on your debts, and you avoid bankruptcy.

Which option is best for you? Or do you have no choice but to file bankruptcy? Start with some research: Read our articles on consumer proposals, or read questions posted on our anonymous question and answer blog about consumer proposals. You can even join our on-line support group that allows you to discuss consumer proposals and other options. These posts are real, and people just like you post both the pros and cons about proposals, so you can hear both sides of the story to help you make a decision.

My advice: talk to your family and friends, but also talk to an expert. A consumer proposal administrator and bankruptcy trustee will give you a free, no obligation initial consultation to help you make an informed decision, so do your research, contact a trustee today, and make an informed decision.

Posted on Monday, April 19th, 2010
Filed under: Bankruptcy Alternatives andbankruptcy Canada andConsumer Proposal andDebt Options
posted by Doug Hoyes @ 5:25 am 2 Comments