The Office of the Superintendent of Bankruptcy recently released June bankruptcy statistics. Looking at the first six months of 2015, consumer insolvencies in Ontario were down a little over 3% compared to a year ago. In Ontario, bankruptcies have been on the decline since 2009, in large part due to a relatively strong economy and low interest rates. I believe, however, that there is significant upward pressure ahead.
Credit reporting agency TransUnion recently reported that delinquency trends are on a decline despite increased debt loads, making it appear that Canadians are getting better at handling consumer debt.
Contrary to common sense predictions, consumer insolvencies have actually declined while overall debt levels have increased. The question is: how long can this last?
The way I see it, many Canadians are playing chicken with their personal finances.
Lower delinquencies, and in large part lower consumer insolvencies, reflect our low interest rate environment. With the bank rate now hovering below 1%, and 3-year mortgage rates just above 2%, it’s not surprising that most consumers can keep up with their mortgage and variable rate credit payments.
The question is, what happens if you are facing a one-percent increase for the carrying costs of your line of credit? Or if your mortgage renews in four years, are you ready to absorb the possibility that your new mortgage rate may be higher than it is today?
Rising interest rates will become one of the biggest causes of personal bankruptcy in the next few years. Today, one of the biggest reasons people find that their finances tip them into the realm of filing bankruptcy, is job loss. If economic conditions worsen, your job may be at risk. Looking at personal insolvencies filed in other provinces, this is exactly the scenario faced my many Canadians in provinces where the economy is driven by the price of oil. Alberta, Manitoba, Saskatchewan and several eastern Canada provinces have all seen increases in the number of consumer insolvencies in the last several months due to lower employment levels. Ontario’s employment conditions are relatively healthier, but what about your personal situation? How secure is your job today or tomorrow?
Do you have enough emergency money set aside to keep up with your debt payments until you find new work?
So yes, the good news is, consumer insolvencies in Ontario are low; most Canadians are handling their debt. But what happens when conditions change? Will you be ready or are you playing chicken with your debt?