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What Causes Bankruptcy?

The editors of have surveyed some of the Licensed Insolvency Trustees that contribute to this site, have reviewed all of the questions that appear on our Bankruptcy Canada Blog and, as a result, they have determined that there are three leading causes of bankruptcy in Canada.

Before we explain the reasons, please note that each year over 100,000 Canadians file for personal bankruptcy, or file a consumer proposal; so, if you are reading this site and you have financial problems, you are not alone.

The three leading causes of personal bankruptcy in Canada

The first one on the list of leading causes of bankruptcy in Canada is job loss, or reduced income in general. Losing your job or having your overtime reduced, for example, can make it increasingly difficult for you to make your debt payments.

Faced with a job loss, one of your keys to survival is reducing your expenses as quickly as possible to free up cash and continue servicing your debts. This is of course easier said than done, since you cannot quickly reduce your rent or car payments, but remember that reducing other expenses, whenever possible, is often the key to avoiding bankruptcy.

Another one of leading contributors to personal bankruptcy in Canada is marriage separation or divorce. Approximately one third of all people filing personal bankruptcy in Canada are either separated or divorced at the time of filing.

It’s easy to see why separation and divorce can lead to financial problems. As a couple you only have to pay rent once, and you only have one phone bill, hydro bill, and you share most other expenses. Once you are separated, you are each paying your own bills, so your expenses increase, but your income stays the same.

If you have debts when you separate, your increased expenses may make it difficult to continue to service the debts.

The last on our list of leading causes of bankruptcy in Canada, are medical problems; they often can and do lead to a lot of financial problems. Fortunately, in Canada most of our medical expenses, such as hospital care, are covered by the government, unlike in the United States where medical bills for uninsured Americans are a leading cause of bankruptcy in America.

However, if you get sick or injured, and you are off work for a number of months, even with medical insurance your income is reduced, and that makes it more difficult to service your debts.

For a more detailed list of possible causes of bankruptcy in Canada, please visit our Bankruptcy Canada Blog; and remember that regardless of what has caused your financial problems, help is available. If you are considering bankruptcy, we urge you to contact a licensed trustee for a free consultation. He/she will review your situation, and recommend solutions to your financial problems.