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Insolvency Filings Versus Reality

September 27, 2017

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News headlines and studies continue to claim that Canadian debt levels are too high. Banks, credit rating agencies, government agencies, international agencies, associations and regulators are all sounding the alarm: Canadian debt levels are going through the roof and this poses a risk to individuals as well as the economy.

However, we also see that formal insolvency filings (bankruptcies and consumer proposals) are relatively stable compared to what these news headlines are suggesting. During a one-year period from January 2016 to January 2017, consumer insolvencies increased by only 3.4% across Canada, and decreased by 6.0% in British Columbia.

Why the discrepancy between the news headlines and the actual insolvency filings?

Comparing bankruptcy vs consumer Proposal stats

Individuals making a formal insolvency filing have the option of choosing a bankruptcy or consumer proposal, depending on their financial situation. To get a true understanding of the formal insolvency process, one needs to consider both consumer proposals and bankruptcies. As consumer proposals gain in popularity, the number of bankruptcy filings are decreasing. To put this in perspective, we’ve pulled a few national statistics for January 2016 to January 2017 from the Superintendent of Bankruptcy:

  • Bankruptcy filings decreased by 0.3%
  • Consumer proposal filings increased by 7.4%
  • Total insolvency filings increased by 3.4%

Are there regional differences?

When analyzing the change in insolvency filings on a provincial level, the differences between provinces are stark. Looking at total insolvency filings for January 2016 to January 2017, Newfoundland & Labrador saw increases of 30.1%, Saskatchewan 31.4% and Alberta 31.8%, while Quebec, Ontario and British Columbia (largest decline at 6.0%) all saw decreases in their numbers. On the other hand, provinces with economies heavily reliant on oil prices saw significant increases in insolvency filings. It’s also worth noting that provinces which benefit from a weak Canadian dollar have seen insolvency filings decrease.

Unemployment rates and insolvency filings

British Columbia is leading Canada with the lowest unemployment rate in the country at 5.5%. When people have jobs and a steady income, they have more options to deal with their financial difficulties, which means they can continue making payments and have access to various sources of new credit.  Although for many, these options may only delay a formal insolvency filing as they are not reducing their overall debt.

Ironically, this may be detrimental to the individual as postponing a formal insolvency filing denies that individual the fresh start they receive by dealing with their financial difficulties using a Licensed Insolvency Trustee.

Real estate appreciation

Although the real estate market has recently cooled off, the Real Estate Board of Greater Vancouver reports that at the end of March 2017, residential prices in the Lower Mainland were up 14% for the year and 49% for the previous three years.

With increasing real estate values, individuals can tap into their home equity to deal with their financial difficulties. While this may serve as a quick fix, using your home as an ATM may have the unintended impact of adding to your debt, rather than solving the problem.

When evaluating how to deal with a debt problem, individuals should meet with a Licensed Insolvency Trustee to help understand all their options, as well as the long-term impact of their decisions. Borrowing more, or simply making smaller payments over a longer period, does not solve a debt problem.

At Smythe Insolvency, we understand the overwhelming stress financial difficulties can cause and the impact it has on families and relationships. If you, or someone you know, is experiencing financial difficulties, call us today to arrange a free consultation.

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