The media has recently carried stories that that the Consumer Bankruptcy Rate in Canada is Starting to Ease, which sounds like good news. In October, 2009, bankruptcy filings across Canada fell a whopping 27.7 percent in October when compared to the previous month, which is the largest monthly drop on record. This figure softens when you include proposals filed in the same months to 19%, but it is still the largest monthly decrease in the last two years.
On the surface this could be taken as a great indication of where our economy is headed, as the total insolvency rate is an excellent indicator of a nation’s fiscal health. But we all must be cautious in the way we interpret statistics. Before we draw any conclusions it is important to examine a few more details:
- Based on a 12 month year to year comparison as of October 31, 2009 there has been a 31.9% increase in the total number of insolvency filings in Canada
• - Of the 156,255 total filings in Canada 149,350 of these are consumer filings (i.e. individuals) and the remaining 6,905 are business filings over the same period. So the consumer filings represent 95% of the total filings in Canada
- The total consumer filings are up 34.5% from the previous year
- The total business filings are down 7.7% from the previous year.
As we look at these statistics there are a few things that jump out at me.
First, it is very clear that the brunt of the recession has been born on the backs Canadian consumer as the business community has actually seen a reduction in the number of total insolvencies year to date.
Second, there are a great number of people who are having significant difficulties and likely will continue to struggle with their finances for some time.
Third, if we consider this in light of Statistics Canada’s most recent statistics on Canadian household debt, which put the Canadian debt-to-income level at 145%, the highest level since quarterly reporting started in 1990. For those of you who are not familiar with this economic indicator, 145% means that for every $100 of disposable income we carry $145 of debt. Clearly, while we have to question the current state of our economy, this still doesn’t explain the drastic decrease in total insolvency filings.
So how can we account for this dramatic decrease? Realistically this is a question that the statistics can’t adequately explain. So we have to look beyond the number and appreciate the context of these statistics.
For those of you who are unaware, September 18, 2009 was a very significant day for those who are currently struggling with their finances. On September 18, 2009 major amendments to the Bankruptcy and Insolvency Act became law, and this legislation had some very dramatic changes. Some of the more significant changes were as follows:
- Consumer proposal debt limit has been increased
- RRSPs are now exempt from seizure in most cases
- Secured loans and leases cannot be terminated due to bankruptcy
- Bankruptcies involving surplus income will last longer
- Large tax debts may cause a longer bankruptcy
- Student loans will be discharged after seven years
The implementation of these changes was first announced to the insolvency community early in August 2009, and while it took a little time for the changes to be digested and communicated to the rest of the country, the net effect was a dramatic increase of people rushing to file a bankruptcy in an effort to file prior to these changes coming into effect. Again, I can’t prove that the reason for this rush was these changes, but I can tell you that not only was there was a dramatic increase in the volume of my calls, emails and blog postings during that period, but a vast number of those inquiries expressed a need to proceed prior to the implementing of those changes.
Now that the changes are implemented, we have definitely seen a decrease across the insolvency community of total filings in each month, but on average the overall trend of the number of people suffering from economic instability has continued to increase steadily over the course of the last few months. For now this is something that appears to be continuing, but we anticipate that as the economy stabilizes the pace of insolvency filings should also settle in line with historical norms.
Regardless of the economy, people always have trouble with their finances. Whether these troubles are due to our dependence on credit, the aggressive lending practices employed by the lending community, health and employment issues, the lack of financial education provided or for reasons that are completely different, it is important is to recognize that there are governmental programs that are designed to assist people when finances get out of control and whether we are looking at the filing of a consumer proposal, a bankruptcy, or one of the other available options, there are many ways that can allow you to regain control of your finances. Contact a bankruptcy trustee for further information.