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As far as economic news goes, many will agree that it’s a good thing that the number of personal bankruptcies in Canada has declined more than 19% since 2011. The Office of the Superintendent of Bankruptcy, the arm of Industry Canada that regulates insolvencies, also reports that the amount of debt declared by bankrupt consumers has dropped by 22% over this same period, from $8.6B to $7.0B. This doesn’t seem to make sense: how is this possible when we know that Canadian consumers are carrying more debt than ever and many are suffering from financial hardship?
For the first time in Canada’s history, consumer proposals outweigh personal bankruptcies. The total amount of debt declared by Canadians that have filed either a consumer proposal or personal bankruptcy has hovered around $14.0B since 2011. In 2015, consumer proposals represent $7.1B of this debt vs. $7.0B for personal bankruptcies. This is a critical turning point.
Consumer debt continues to escalate but a bankruptcy is now second to a consumer proposal as the preferred choice when dire circumstances require the involvement of a Licensed Insolvency Trustee (LIT). Only LITs are able to file consumer proposals and bankruptcies in Canada. It’s important to note that experienced LITs are able to offer advice to deal with excessive debt such as mortgage refinancing, consolidation loans as well as structuring family loans, liquidating assets to pay down debt, etc. LITs should be your first choice when dealing with excessive debt.
Consumer proposals have taken the forefront for a very simple reason: while consumers continue to increase their debt load to pay for homes, vehicles, groceries and lifestyle expenses, most are able to afford to repay the debt. For those that can’t afford the monthly payments, bankruptcy is not the only option. Consumer proposals are a tool that has proven very effective in dealing with excessive debt. An experienced LIT will help you make an informed decision.
Once an LIT enters the picture, a person carrying too much debt is able to clearly see what options are available. The LIT will prepare a budget to establish fair and reasonable living expense based on the individual’s family circumstances (single, married, number of children, health issues, hobbies, etc.). The LIT will also take into account if any real estate, vehicles, investments and other assets are available to help pay down or reduce the debt.
Consumer proposals have also come a long way from the creditors’ point of view. A well-constructed proposal payable within a reasonable period of time (maximum 5 years) should result in a better return than a bankruptcy. Creditors are prevented from collection action while the proposal is in place but also know that the LIT will ensure payments terms are met on a timely basis. An LIT will construct a proposal that both the consumer and creditor can live with.
If you need help with your plan or are burdened with debt stress, asking for sound advice is a sign of strength and the smart thing to do. Asking sooner rather than later is always better. Call Doyle Salewski today for your free, no obligation consultation. You’ll be glad you did.