Consumers continue to opt in large numbers for renegotiating their debt rather than declaring bankruptcy, according to the latest statistics.
For the 12 months ending Jan. 31, total consumer insolvencies – which includes bankruptcies and proposals in which a negotiated deal with creditors is struck – decreased by 0.5 per cent compared with the 12-month period ending Jan. 31, 2013, says the Office of the Superintendent of Bankruptcy Canada.
But consumer bankruptcies decreased by 4.1 per cent, while consumer proposals rose by 4.8 per cent in the 12-month period.
"What that tells me is that we are probably within a month or two or three of being at the bottom of the trough," said Douglas Hoyes, a Kitchener, Ont.-based bankruptcy trustee with Hoyes Michalos & Associates Inc.
"It's a positive development," he said.
The proportion of proposals increased to 41.9 per cent during the 12-month period ending Jan. 31, up from 39.8 per cent during the previous 12-month period.
"My prediction is that over time the number of proposals filed will continue to increase and we will get closer to 50/50," said Mr. Hoyes.
One of the key reasons for the rise in consumer proposals is that personal bankruptcies became more expensive when the federal government brought in changes to the law in 2009, he said.
The number of consumer proposals in 2006 stood at about 15 per cent.
Under the terms of a consumer proposal, an individual negotiates – with a bankruptcy trustee – to repay creditors part of his or her debt for a fixed period of time, or else the time given to pay off the debt is extended.
Other figures released Monday by the bankruptcy superintendent indicate that the total number of insolvencies in January was 5.4 per cent lower than in the year-earlier period. Consumer insolvencies decreased by 5.6 per cent, while business insolvencies increased by 1.3 per cent.
For the 12-month period ending Jan. 31, 96.5 per cent of total insolvencies were filed by consumers.
Mr. Hoyes cautions that bankruptcy filings may begin to rise again this year.