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 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.