Hoyes Michalos and Associates Ontario Personal Bankruptcy Blog

Bankruptcy and Proposal Filings

In 2009 the number of consumer bankruptcies and consumer proposals increased by 31% in Canada in 2009, after growing by over 14% in 2008. In total, 151,712 Canadians filed a bankruptcy or proposal in 2009, the largest number on record by a wide margin. In Ontario, 66,935 people filed a bankruptcy or proposal, an increase of 32.7% over 2008.

An interesting trend emerged in the last three months of 2009: more residents of Ontario have chosen to file a consumer proposal, instead of going bankrupt, primarily due to new bankruptcy rules.

On September 18, 2009 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. As a result, there was a spike in bankruptcy filings in the two weeks prior to September 18, as debtors rushed to file bankruptcy to take advantage of the old rules. After September 18 the number of bankruptcy filings dropped, while consumer proposal filings continued to increase.

In Ontario in 2009 there were 46,521 consumer bankruptcies, and 20,414 consumer proposals. Bankruptcies increased by 28.5%, but consumer proposals increased by 43.3%.

Why did bankruptcy and proposal filings increase by record amounts in 2009?

Obviously the recession has caused great financial hardship. As the unemployment rate increases, so too does the growth in personal insolvency filings. The unemployment rate in Ontario rose through the first half of 2009, peaking at 9.5% in May, so the growth in consumer filings is not surprising. (In Canada, the unemployment rate rose from 6.1% to 8.3% during 2009). However, high unemployment is only one reason for the high bankruptcy rates in 2009.

Residents of Ontario continue to borrow at record rates, and in 2009 household credit per person in Canada reached a record level of $40,207. After five consecutive years of double digit growth, the rate of growth for household debt finally slowed to a comparatively low growth rate of 7.8%. However, given the tightening of credit markets and the continuing recession, growth in debt of 7.8% is still a worry for the Canadian consumer, and no doubt contributed to the growth in insolvencies.

While household credit per person grew by 6.4% in 2009, personal disposable income grew by only 0.6% in the first nine months of 2009. This means that, by the end of the third quarter of 2009, Canadians were carrying household debt of 140.8% 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 $1.28 in debt for each dollar earned.

This is a worrisome development for all Canadians carrying debt, because it’s not only the level of debt that is a problem, but the cost of carrying the debt. While consumer debt has continued to increase, consumers have benefited from historically low interest rates. Unfortunately, low interest rates mean Canadians have continued to borrow, leading to record levels of debt. As long as interest rates remain low this may not be a problem, but if interest rates increase, Canadians will be unable to service their debt. This week the government announced that the economy is improving, so it is likely that the Bank of Canada will start to raise interest rates later this year. If that happens, the cost of carrying debt goes up, and more Canadian will experience financial problems.

The message is clear: excessive personal debt is a ticking time bomb, and unless Canadians take steps to deal with their debt, an increase in interest rates or a further reduction in employment will lead to a continued trend of higher personal insolvencies.

For many debtors this 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 family or friends. Unfortunately many debtors are now turning to unscrupulous debt consultants, who charge a fee and then simply refer the debtor to a bankruptcy trustee. We strongly urge debtors 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.

For more information on personal bankruptcy statistics for 2009 see our article bankruptcy statistics for 2009 and 2008, with detailed personal bankruptcy statistics for major cities in Ontario. Our Bankruptcy Trend Report: 2009 contains our detailed analysis.

If you are treading water, trying to service your debts, please call our 310-PLAN help line (no area code required anywhere in Ontario), or contact us by e-mail, or complete our free on-line evaluation, and we 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 bankruptcy statistic.

Douglas Hoyes, Bankruptcy Trustee

As predicted in previous posts, there was a massive increase in the level of personal bankruptcy filings in Ontario and Canada in September, 2009. Here are the numbers:

In September, 2009 in Canada there were 12,305 personal bankruptcies filed, a 47% increase over the same month in 2008. In addition, there were 3,160 consumer proposals filed, for an increase of 39%. Not surprisingly, the personal bankruptcy rate in Canada increased by more than the consumer proposal rate due to the new bankruptcy rules that came into force on September 18, 2009. There was obviously a rush by Canadians to file before the new rules were implemented.

Here’s the scary part: for the twelve months ended September 30, 2009 the bankruptcy rate in Canada increased by 36%, and for the three months ended September 30 the personal bankruptcy rate increased by 41%. So the rate increase for twelve months is 36%, for three months it’s 41%, and for one month it’s 46%. That shows that the bankruptcy rate is increasing at an ever faster pace. That’s bad news for the Canadian economy.

In the last twelve months in Canada 148,378 Canadians have filed an insolvency proceeding (116,295 personal bankruptcies and 32,083 consumer proposals). That’s record, by a wide margin. That compares to 100,552 in the same period in 2007, and 108,807 in 2008.

In Ontario, the statistics are equally grim: In September there were 5,007 personal bankruptcies filed (the first month ever over 5,000), an increase of 49% from last September. Proposal filings were up 36%.

The government doesn’t publish statistics by city each month, but we know that in the last three months personal bankruptcies were up by 41% in Toronto, 39% in Hamilton, 55% in Kitchener, 39% in London, and 44% in Windsor.

We will continue to analyze the numbers, but the message is clear: the recession is not over, so now is the time to consider your options and reduce your debt, so that you can survive the continued recession.

The new bankruptcy rules are here. As I have been discussing for many months here on the Hoyes Michalos Bankruptcy Blog the new rules came into effect on Friday September 18, 2009. To beat the new rules many people filed bankruptcy in the few days leading up the rule changes. At Hoyes Michalos we had our two busiest days in history on Wednesday September 16 and Thursday September 17. In fact, September 17 was our busiest day in history, and we did over three times our normal daily volume.

Not surprisingly, the government’s electronic filing system felt the strain, and it was down from late Thursday night until 8:30 am today, September 21. In other words no-one was able to go bankrupt on Friday September 18, the day the new rules came into force. By my estimate Thursday was also the busiest bankruptcy day in Canadian history, with over 1,700 individual Canadians filing bankruptcy, which again is more than three times a normal day’s volume. The irony of course is that Friday was the slowest day in Canadian bankruptcy history: with the government’s system down, no-one filed bankruptcy.

What does the future hold? I have three predictions:

First, I believe that personal bankruptcy filings in Ontario, and consumer proposal filings, will remain at record level for many more months. For the twelve months ended July 31, 2009, the most recent period for which statistics are available, there were over 140,000 Canadians that filed a consumer proposal or bankruptcy. That’s a 32% increase over the prior twelve months, so there is no doubt that the economy is still in very bad shapes, and insolvencies will continue at a high level. If I had to make a prediction I would predict that filing will be in the range of 150,000 per year for at least 2009 and 2010. After that, they may decline slightly if the economy improves, but significant declines won’t happen until our debt levels decrease.

Second, I predict that the percentage of consumer proposals filed will increase. Under the new rules, in a first bankruptcy if you have more than $200 in surplus income, the length of a bankruptcy is increased to 21 months (from nine months). That means the cost of bankruptcy is higher, so many people will choose to file a consumer proposal as an alternative to bankruptcy. I have always supported consumer proposals as an alternative to bankruptcy, so that will be good news for many people.

My third prediction is that I will be spending more time looking at calendars and doing math. As noted above if you have $200 per month of surplus income, on average, during the first six months of your bankruptcy, the bankruptcy is automatically extended. The surplus income calculation is relatively easy if you are paid a fixed salary, or get a pension, since your income doesn’t change each month. But, if you are paid weekly or bi-weekly, your income changes when you have a five or three paycheque month. As a trustee I now must look at the calendar to see when you will have those extra paycheque months. If you have one of them during the bankruptcy period it may not increase your average surplus income, but if you have two or three of them during the first six months of your bankruptcy, your surplus income may be pushed over the $200 per month limit, causing an increase in the length of your bankruptcy. The entire Hoyes Michalos team of trustees will be working extra hard over the next few weeks to become familiar with the math necessary to help you estimate your future income, including your extra paycheque months.

We are in for challenging times ahead, but our commitment remains the same. We will review your options for dealing with debt in detail, and help you understand the implications of your decision. The math may be slightly more complicated, but our goal is to help you find the solution that works for you, so contact us today, and one of our professionals will be pleased to meet with you to help you get a fresh start.

Back in May I reported on the massive increase in the personal bankruptcy rate in Ontario. I am sad to report that the personal bankruptcy rate continues to jump.

We have just finished the month of June, 2009. June is typically not a very busy month for us here at Hoyes Michalos. Our busy months tend to be March, April and May, as residents of Ontario deal with Christmas bills, tax debts, and other problems.

This year we were very busy in the spring, and we just kept getting busier, and in June we had a record volume month. The number of personal bankruptcy and consumer proposal filings in June at our firm were up 60% over the same month last year. In our history we have never had a 60% volume increase comparing one month to the same month in the previous year.

We also track the number of phone calls we take on our 310-PLAN debt help line, the number of free on-line bankruptcy evaluations that are submitted, and the e-mails we receive with questions at Hoyes Michalos, and in June the volume of Ontario residents asking for our help was also up almost 60% from last year.

Most distressing is that when I look at the rate of increase in both calls and actual filings, the rate of increase is increasing each month. That means the number of people in financial trouble is increasing, and increasing at an ever faster rate. That’s not surprising, given that real estate prices continue to fall, and unemployment remains high. You can analyze the numbers however you want: however you do it, the message is clear: the personal financial situations of the people we meet with are getting worse, not better.

I am a strong believer in doing whatever you can to protect yourself and your family. If the economy continues to worsen, it is likely there will be more job losses, and more people with reduced income, so now is the time to take action to protect yourself. Start by reading our article on Five Tips to Survive the Economic Crisis. Pay down your debt. Reduce your expenses and start saving money. If you can’t deal with your debt on your own, talk to us about your options, including filing a consumer proposal or personal bankruptcy.

Now, more than ever, you must be pro-active, so call us at 310-PLAN (no area code required in Ontario), or complete our free on-line options evaluation so we can e-mail you with detailed solutions, or send us an e-mail to arrange a free initial consultation, and let’s get started.

The personal bankruptcy rate continues to grow. 2008 was a record year for personal bankruptcies, and 2009 has started at an even faster rate of growth, according to statistics just released by the Office of the Superintendent of Bankruptcy.

Consumer bankruptcy filings in 2008 increased by over 16% in Ontario in 2008. For the twelve months ended March 31, 2009 personal insolvencies increased by over 25% in Ontario.

Comparing the first three months of 2009 to the same period last year, personal bankruptcies in Ontario are up by 38%, and consumer proposals are up by 48%, for an overall growth rate of 41%.

Comparing March 2008 to March 2009, personal bankruptcy in Ontario was up by 60%, and consumer proposals increased by 67%. Overall the personal insolvency rate in Ontario was up by over 62%.

Here are the growth rates for various cities in Ontario for the first quarter of 2009, as compared to the first quarter of 2008:

• Toronto +39.9%
• Hamilton +47.2%
• St. Catharines – Niagara + 23.1%
• Kitchener +36.0%
• Brantford +38.7%
• Guelph +49.1%
• London + 62.5%
• Windsor+39.5%
• Barrie + 61.5%

The statistics are clear: personal bankruptcies in Ontario continue to increase at an ever faster rate. Despite what you may hear in the media, there is no sign of an economic recovery yet when you look at these numbers. Times are tough, and they will continue to be difficult until the economy truly recovers.

What should you do? Read our five tips to survive the recession. Reduce your debt. Cut your expenses and live as inexpensively as possible.

If you have more debt than you can handle, call us at 310-PLAN, or send us an e-mail and we will explain your options, and help you make a plan to deal with your debts. You are not alone.

The number of personal bankruptcies continues to grow at an ever increasing rate. The number of people who filed for bankruptcy in Canada in 2008 was the highest number on record. Consumer bankruptcy filings in 2008 increased by over 16% in Ontario in 2008. Statistics for cities in Ontario can be found on our Ontario bankruptcy statistics page.

The bad news is that the the number of consumer bankruptcies filed continues to increase at an ever increasing pace. In the twelve month period ending February 28, 2009, consumer insolvencies in Ontario were up almost 18% over the previous year, according to the Office of the Superintendent of Bankruptcy. That follows an 18% increase for the twelve months ended January 31, 2009, so the rate of increase is not slowing. As I write this March statistics have not yet been released, but I expect them to also be up.

At Hoyes, Michalos we monitor call volume on our 310-PLAN bankruptcy help line, so I know that volume is up. In fact, April saw the biggest increase in call volume since January (based on a comparison of this month to the same month last year). Our call volume increased by 26% in February, 34% in March, and by 54% in April. That tells me that there are a lot of people who are in financial trouble, and are looking for help.

Part of that growth is as a result of people who can no longer afford to keep their homes, and can’t sell them because the house value has declined to below the amount owing on the mortgage. Obviously job loss is a factor, as the unemployment rate continues to increase.

Our message continues to be the same: if you are struggling with debt, give us a call at 310-PLAN, or send us an e-mail and we will explain your options, and help you make a plan to deal with your debts. You are not alone.

What do you think a bankrupt person looks like? Do you think they are unemployed and “down and out”?

I personally compiled statistical data on everyone who recently filed personal bankruptcy or a consumer proposal with Hoyes Michalos, and in our just released study, The Face of Bankruptcy – You May be Similar to the Typical Bankrupt Person, we reveal that the average bankrupt looks very much like the average Canadian.

Joe Debtor, as we call the average bankrupt, is a male, 42 years old. He has one dependent living with him, either a spouse or a child. His take home pay is about $2,071 a month. Even though we call him Joe Debtor, almost half of all bankrupts are female, and they range in age from their early twenties to over 80 years old.

The average bankrupt has total unsecured debt of over $51,100, including $18,335 owing on credit cards, $13,365 on bank loans and lines of credit, and $5,276 in taxes owing. Our study shows that 33% of these individuals stated that lay-off or reduced incomes contributed to their financial problems, 16% stated that a relationship break up was a primary cause, and 40% admitted that they were over-extended and mismanaged their finances.

Most Canadians in financial difficulty are good, hard working people, but due to divorce, job loss and over use of credit are forced into bankruptcy. They do not follow the typical stereotype of the average bankrupt; in fact, they look like the average Canadian.

If you have more debts than you can handle, you are not alone. Call us today at 310-PLAN (that’s 310-7526, no area code required in Ontario), or e-mail us to arrange a free initial consultation.

The number of personal bankruptcy and consumer proposals filed in Ontario reached a record 42,434 in 2007, an 8.2% increase over 2006 levels.That total is made up of 31,409 people who filed personal bankruptcy in Ontario in 2007, an increase of 5.2% over 2006, and 11,025 people who filed a consumer proposal in Ontario in 2007, an increase of 17.5% over 2006 levels.

Canada wide personal bankruptcies were up less than 1%, and consumer proposals increased by 10.6%. It appears that places with a large manufacturing base, like Windsor, suffered more than places like downtown Toronto, were most jobs are in the service sector.

Detailed statistics by city can be found on our personal bankruptcy statistics page, and more analysis can be found in our 2007 personal bankruptcy statistics analysis.

As the economy continues to worsen, we will probably see increasing bankruptcy rates in 2008. If you are experiencing financial problems, don’t be a statistic; call us today at 310-PLAN, or e-mail us to arrange a free initial consultation.

The number of consumer proposals filed in Ontario increased by an astounding 22% during the first six months of 2007, according to statistics just released by the Office of the Superintendent of Bankruptcy. The number of personal bankruptcies filed in Ontario increased by 5% in the first six months of this year (after falling by 4.5% last year).Why the moderate increase in bankruptcies, but the huge increase in consumer proposals?

No-one knows for sure, but based on my observations (our team talks to over 1,000 people in financial difficulty every month) I think there are a number of factors.

First, people are more aware of consumer proposals. At Hoyes Michalos we want everyone to consider all of their alternatives before filing for bankruptcy, and for many people a consumer proposal is the perfect solution. That’s why we talk about making a plan on our website, and why we talk about consumer proposals on the radio. I even recorded a short video about consumer proposals to explain how they work. (You can even see our videos on You Tube.) I believe that the more we talk about proposals, the more likely it is that people will learn about this great bankruptcy alternative.

Second, almost everyone who files a consumer proposal has a job, and many own a house, and they don’t want to risk losing their house, or a portion of their income, in a bankruptcy.

Finally, most people I meet want to pay their debts, they just need a bit of a break; that’s what they get with a consumer proposal: the ability to make one monthly payment to deal with their debts.

I predict that the number of people filing consumer proposals will continue to increase for the remainder of this year, as people look for a way to get a fresh start.

Want to learn more? Research your options (check out our top 50 questions and answers, and then fill out our bankruptcy evaluation form, or send us an e-mail, or call us today to set up a free, no obligation initial consultation, and let’s get started.