In statistics just released by the Office of the Superintendent of Bankruptcy, 917 residents of Cambridge filed a consumer proposal or personal bankruptcy in 2009. That’s an increase of 33% from 2008, and is the highest number of filings on record. (More information for prior years can be found on our Cambridge Bankruptcy Statistics page).
Why are bankruptcies are up to record levels in Cambridge? There are two reasons:
First, we are in a recession. Unemployment is high, and when you are out of work it’s harder to pay your debts. I meet with many people each week who are actively looking for a job, but jobs are not easy to find at the moment.
Second, residents of Cambridge, and in fact in all of Canada, are carrying record levels of debt. Canadians have household debt of 141% of their personal disposable income, the highest level in history. This means that for every dollar a Canadian earns, they have $1.41 in debt. Two years ago Canadians carried "only" $1.28 in debt for each dollar earned. When debts are high, bankruptcy rates rise.
Interestingly, of those 917 people who filed last year in Cambridge, 634 filed bankruptcy, and 283 filed proposals. In other words 31% of Cambridge residents filed a proposal last year, the highest percentage on record.
A consumer proposal is a deal made with creditors to avoid bankruptcy. Last year in Cambridge my firm, Hoyes, Michalos & Associates, filed more about a third of all consumer proposals filed in Cambridge, making us the largest filer of consumer proposals in the area. In a typical proposal you may pay back about a third of your debt, so if you owe $50,000 on credit cards and loans, you may pay $350 per month for four years, and once the proposal is completed your remaining debts are discharged. It’s a great way to avoid bankruptcy.
So why are more residents of Cambridge filing proposals? Most people don’t want to file bankruptcy, but it is also due to the fact that government of Canada changed the bankruptcy rules on September 18, 2009 when new bankruptcy rules came into force, increasing the cost and length of a bankruptcy for bankrupts with surplus income. The debt limit for eligibility to file a consumer proposal was increased, increasing the attractiveness of a consumer proposal as a debt management option.
In other words, a bankruptcy is now more expensive for some people, making a consumer proposal an even better alternative.
What will happen in 2010? If the economy recovers, the number of bankruptcies filed in Cambridge may fall. However, if the economy recovers, it is likely that interest rates will increase, and if the cost of carrying debt goes up, more bankruptcies may result.
So what’s my advice? Excessive personal debt is a very dangerous, and unless residents of Cambridge take steps to deal with their debt, an increase in interest rates, or having hours cut back at work, will lead to a continued trend of higher personal bankruptcies.
For many people this recession is the first time in their lives they have experienced debt problems, and they don’t know where to turn for advice. They are embarrassed to talk to friends or co-workers. Unfortunately many debtors are now turning to less than reputable debt consultants, who charge a fee and then simply refer the debtor to a bankruptcy trustee. We strongly urge everyone to investigate their advisors before paying anything. Confirm that they are licensed by the federal government, or a provincial agency. At Hoyes, Michalos & Associates we do NOT charge any up-front fees; no reputable trustee charges an up front fee. More information is available in this article on Debt Consultant Scams.
If you are treading water, trying to service your debts, please call my office in Cambridge at (519) 622-3773 or 310-PLAN, or e-mail me, and I will review your situation and help you make a plan to deal with your debts; we will do our best to help you avoid becoming a Cambridge bankruptcy statistic.
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