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Household finances

Despite large debt loads, fewer Canadians filing for bankruptcy this year Add to ...

Insolvencies in Canada rose on a month-over-month basis in August but fell from a year earlier, suggesting people are still able to make payments on their ballooning debt loads.

The total number of insolvencies rose by 5.4 per cent in August, 2012 from the previous month, the Office of the Superintendent of Bankruptcy Canada said in a Wednesday report. It defines insolvencies as both bankruptcies and agreements to settle debts, known as proposals. A larger proportion of consumers have been filing proposals since the law was changed to increase the amount of debt that can be included in one in 2009.

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Consumer bankruptcies rose by 4.5 per cent in August from July while proposals climbed 6.7 per cent higher.

The long-term picture was rosier. Consumer insolvencies for the 12-month period ending Aug. 31 fell 5.1 per cent compared with the previous year. Consumer bankruptcies dropped 10.9 per cent, while consumer proposals climbed 5.9 per cent.

Business insolvencies for the 12-month period ending Aug. 31 fell by 5.8 per cent compared with the same period ending a year earlier, the latest data from the bankruptcy superintendent showed.

Doug Hoyes, a Kitchener, Ont.-based bankruptcy trustee with Hoyes Michalos & Associates Inc., says the reason consumer bankruptcies are still falling from their September, 2009 peak is that the economic situation for most Canadians is better now than it was then.

“Unemployment is not that horrible in Canada when compared to the depth of the recession and the heart of the credit crisis, and that is the main reason why things are better now than two or three years ago.”

Although many Canadians are shouldering more debt than they were then, Mr. Hoyes says having debt is not a problem as long as you can make your payments. “We are still in a very low interest rate environment and as a result, even people who have a lot of debt can still pay it off.”

Once interest rates rise or the jobs pictures worsens, he believes many people will run into trouble paying off their debts. “The vast majority of people who have debt are living close to the edge. So the real simple math is that for someone with a variable mortgage rate, even a small increase will be a huge blow.”

His advice to people carrying a lot of debt is to pay off as much as possible now, before rates go up.

Andy Fisher, a bankruptcy trustee at A. Farber & Partners Inc. in Toronto, attributes this summer’s month-over-month jump in insolvencies to a slate of negative news about the housing market and economic problems in Europe, which prompted people to file for bankruptcy or enter proposals. The federal government’s move to tighten mortgage rules also had an impact, because some people were no longer able to refinance themselves out of their debt.

“Today, there is even more debt but the news seems more positive,” he says. “People are not heeding the warning signs from the government and delaying the inevitable.”

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