In statistics just released by the Office of the Superintendent of Bankruptcy, 1,319 residents of Brantford filed a consumer proposal or personal bankruptcy in 2009. In the City of Brantford there were 701 filings, and in rural Brantford, including Caledonia, Delhi, Dunnville, Paris and Simcoe there were a further 618 filings. That’s an increase of 38% from last year. Ontario was up about 32%, so Brantford fared slightly worse than the rest of the province.
The attached postal code map shows where each bankruptcy occurred. Not surprisingly, more bankruptcies happen where more people live, in the center of the Brantford. (We assembled this map based on our analysis of filings by postal code; the government does their math slightly differently, and they calculated 822 filings in Brantford and some of the outer areas, for a total increase of 40% for the year).
Why are bankruptcies are up to record levels in Brantford? There are two reasons:
First, we are in a recession. Unemployment is high, and when you are out of work it’s harder to pay your debts.
Second, residents of Brantford, and in fact in all of Canada, are carrying record levels of debt. Canadians are 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 “only” $1.28 in debt for each dollar earned. When debts are high, bankruptcy rates rise.
Interestingly, Of those 1,319 people who filed last year in Brantford, 960 filed bankruptcy, and 359 filed proposals. In other words 27% of Brantford residents filed a proposal last year, the highest percentage on record.
A consumer proposal is a deal made with creditors to avoid bankruptcy. Last year in Brantford my firm, Hoyes, Michalos & Associates, filed more than a third of all consumer proposals filed in Brantford, making us the largest filer of consumer proposals in the area. In a typical proposal you may pay back about a third of your debt, so if you owe $40,000 on credit cards and loans, you may pay $300 per month for four years, and once completed your remaining debts are discharged. It’s a great way to avoid bankruptcy.
So why are more residents of Brantford filing proposals? One reason is that the government of Canada changed the bankruptcy rules on September 18, 2009 when 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.
In other words, a bankruptcy is now more expensive for some people, making a consumer proposal an even better alternative.
What will happen in 2010? If the economy recovers, the number of bankruptcies filed in Brantford may fall. However, if the economy recovers, it is likely that interest rates will increase, and if the cost of carrying debt goes up, more bankruptcies may result.
So what’s my advice? Excessive personal debt is a ticking time bomb, and unless residents of Brantford 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 people this recession 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 or co-workers. 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.
If you are having debt problems, please call my office in Brantford at (519) 770-4440 or 310-PLAN, or contact me by e-mail, 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 Brantford bankruptcy statistic.
