First it was Bear Stearns, then Lehman Brothers and Merrill Lynch. As the economy continues to spiral downward, businesses of all sizes are filing for bankruptcy every day.
But what about personal bankruptcies? According to Doug Hoyes, bankruptcy trustee with Ontario firm Hoyes Michalos & Associates Inc., the rate of personal bankruptcies has skyrocketed over the last quarter. The number of personal bankruptcies Hoyes Michalos filed last month was up was up 47 per cent from last January and throughout the year, the firm's filings were up 48 per cent from the year before.
“We saw things really pick up in September, and since then it's been like this giant snowball going faster and faster,” Mr. Hoyes said.
“It ain't pretty and that's why our call volume is going through the roof right now.”
Mr. Hoyes says his firm receives calls from people in all earnings brackets. “At some point people from every walk of life have to go bankrupt. . . doctors, lawyers. . . everyone.”
Mr. Hoyes' business partner, Ted Michalos said that marital breakdown is the most common reason people file for bankruptcy, followed by a disruption in employment. In this type of economy, however, he said disrupted employment, specifically job loss, is probably the biggest reason.
But despite the huge influx of calls Hoyes Michalos has experienced, only 20 per cent of people the firm works with end up filing for bankruptcy.
“Most people don't know what their options are,” Mr. Hoyes said.
It turns out that people overwhelmed with debt have many options, and filing for personal bankruptcy is only one of them. Doug Hoyes joined us for an online discussion. Thanks to all those who submitted questions.
Doug Hoyes is a licensed trustee in bankruptcy, chartered accountant, chartered business valuator, and chartered insolvency and restructuring professional. Before co-founding his own firm in 1999, Mr. Hoyes worked at KPMG and PricewaterhouseCoopers.
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Claire Neary, Reportonbusiness.com: Hi Doug, thanks so much for joining us today. We've got lots of questions lined up, so we'll get right to them.
M Dash from St. Albert Canada: What exactly happens when a person (or couple) go bankrupt (in simple terms)? Do you get to keep your house? Are your wages garnished? Do you try to dissuade people from going bankrupt, even though you're in that business?
Doug Hoyes: In simple terms, personal bankruptcy in Canada is a legal process where a bankruptcy trustee is appointed to administer your estate. The trustee takes your assets, and distributes that money to your creditors. In most bankruptcies there are no assets to distribute. The rules regarding houses are different depending on where you live in Canada, so you should consult a local trustee. If your house has equity, in most provinces you lose that equity when you go bankrupt.
To give a simple example, if your house is appraised at $200,000 and the mortgage is $190,000, there is $10,000 in equity, so you would either be required to pay the trustee $10,000 to keep your house, or you would lose your house. I am giving you an overly simplified answer, because trustees will consider other factors (such as selling costs and property taxes owing).
The most common reason for going bankrupt is to prevent your wages from being garnisheed, so in most cases all wage garnishments stop when you go bankrupt.
Do I try to dissuade people from going bankrupt, even though I'm in that business? Great question. Yes, I do. I always explain all options for dealing with debt, including cutting your expenses, negotiating a settlement with your creditors, getting a debt consolidation loan, doing a debt management plan through a not for profit credit counsellor, or filing a consumer proposal. Only after we have eliminated those options will we discuss bankruptcy. In fact, last year over 15,000 people in financial trouble contacted my firm, but we only filed just over 3,000 consumer proposals and bankruptcies, so over 80% of the people we talk to do NOT go bankrupt; we help them find other solutions.
