A quarter of one percentage point doesn’t sound like much, but as I explained in the interview, this is the second quarter point increase in the last two months; if rates keep rising, it will make a difference.

Here’s the example I used in the interview: If you have a $200,000 variable rate mortgage, you are paying around 2% interest.  If rates go up by .25%, you will be paying 2.25%, so your monthly payment will increase from $846.90 per month to $871.22 per month.  That’s $24.32 per month, so that’s probably not a big enough increase to make a difference to you.  However, over 25 years, that’s an extra $7,296 in payments.

However, rates are now up half a percent this year, and if they increase another half a percent later this year, that’s a full point increase, which is about $100 per month on a $200,000 mortgage, which is almost $30,000 over a 25 year mortgage term.

Small increases add up to big increases, and that will cause problems for many Brantford residents.  When you combine higher interest rates with the new HST, it’s likely we will all have less money in our pockets as the year progresses.

My advice?  If you have debt, now is the time to start reducing your debt before interest rates rise further.  A consumer proposal is a great way to negotiate a settlement with your creditors if you can’t pay them back in full.  For more information, give me a call in Brantford at 519-770-4440, or e-mail me, and let’s get started.

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.

There was a light dusting of snow on the ground, and it was still dark (the shortest day of the year was yesterday) as I stood across the street waiting for the festivities to begin. I already knew what to expect; my two boys wanted to see the torch, so my boys, my wife and I braved the chill last night to stand on Colborne Street waiting for the torch. Last night I could see a few hundred people lining Colborne Street. This morning at 7:00 am there were a few dozen people on Brant Avenue, also braving the cold.

The torch was cool, but what struck me where the literally dozens of vehicles that accompanied the torch runner. There were Brantford police, OPP and RCMP vehicles, and city of Brantford trucks. There were security people on bicycles. There were trucks with singers and dancers, and this is where my financial mind took over: how much is this costing us?

According to the official torch relay web site “The 2010 Olympic Torch Relay is self-funded and revenue comes from sponsorships and contributions.” I have a hard time believing that the Brantford Police, the OPP and the RCMP are “self-funded” from “sponsorships and contributions”.

There is no “free lunch”. If something seems too good to be true, it probably is. Just because the store says you don’t have to pay for a year, doesn’t mean you never have to pay. A zero percent interest deal doesn’t mean there is no interest; it just means the interest costs are built into the cost of the product. And just because they tell us that the Olympic Torch Relay is “self-funded” doesn’t mean that we as taxpayers aren’t footing at least some of the bill.

I’m not a total cynic. I like the Olympics, and I hope our athletes do well. But the thought did occur to me this morning that instead of standing in the dark watching a parade of corporate sponsored trucks, perhaps I personally would have been better off putting on my own running shoes and going for a run.

That’s my message today: look out for yourself, and don’t buy into the corporate hype. Buying that fancy new gizmo probably just means you will end up paying more in interest for something you don’t really need. If the corporations want to spend millions of dollars on the Olympics, that’s their prerogative. For myself, I’ll “self-fund” myself, and keep my money in my pocket.

We discussed some of the new bankruptcy rules that came into force on September 18, 2009. Some of the new rules are complicated, and I was impressed by their knowledge of the implications of many of the new rules. They truly want to find the best solution for their clients, and to do that they take the time to explain all of the options.

(As an aside, there are some “for profit” debt consultants who pretend they are acting in your best interests, but often they will charge you a fee and NOT explain all of your options. At the Family Counselling Centre of Brant, and here at my firm, Hoyes, Michalos & Associates Inc., we explain all options so that you can make an informed decision).

They told me that there are a lot of people in Brantford having financial problems, and I agree; we are also very busy. However, the good news is that there is help available, so if you want a trustee’s advice, call my office in Brantford at 519-770-4440, or contact the credit counsellors at the Family Counselling Centre of Brant for a no charge initial consultation.

Answer: In general, yes, the creditor will pursue the applicant first. If the applicant does not pay, then the creditor may pursue the co-applicant. However, if two people have signed for the debt, the creditor can pursue both of them initially if they so choose.

Answer: If you have a line of credit secured by your house (like a mortgage), and the bank forecloses on the house and sells it, the line of credit is no longer secured by the house, since the house is sold.

If the bank recovers enough money to pay off the line of credit, then yes, it is automatically paid off. However, if the bank does not get enough to fully pay it off, they can pursue you for the shortfall, which in some cases may require you to file a consumer proposal or bankruptcy to deal with the debt.

I believe bankruptcy may be necessary, but it should not be considered until you have looked at your other options:

• Work through the problems on your own, perhaps by making a budget and cutting expenses.
• Get a debt consolidation loan to lower the interest you are paying, so you can pay off your debts faster.
• Talk to a credit counsellor at the Family Counselling Centre of Brant, Brantford’s only not for profit counselling agency
• Consider a consumer proposal;
• If none of those options are possible, bankruptcy may be the final option.

For an interesting discussion of the pros and cons of bankruptcy, Greg McMillan wrote and interesting article asking whether or not residents of Brantford are jumping the gun by filing for bankruptcy?

Each situation is different, so if you have questions about your situation, call my Brantford office at 519-770-4440, or e-mail me to set up a free initial consultation.

Why is this happening?

First, more people in Brantford are losing their jobs, or having their hours reduced at work, so they just can’t make ends meet.

Second, house prices continue to fall in Brantford, so it’s no longer possible to re-finance your house to pay off your debts, or sell your house at a profit to raise cash. An increasing number of Brantford residents are finding themselves “under water” (the value of their house is less than the amount owing on the mortgage), so they are letting the bank foreclose, and they are finding a place to rent, and then dealing with the resulting shortfall.

Finally, a large number of the people I meet are no longer optimistic. They believe that the recession won’t end tomorrow, so they are deciding to go bankrupt now to deal with their debts, in the hope that by 2010 the economy has improved, and they will have a fresh start.

I can’t predict when the recession will end, or when house prices in Brantford will start to increase, but I can tell you that debt problems don’t go away on their own, so if you are struggling with debt, now is the time to act. Call my Brantford bankruptcy office at 519-770-4440 or 310-PLAN (no area code required), or e-mail me today with your questions, and let’s get started making a plan for dealing with your debts.

However, I do have a large number of Brantford residents that have filed a bankruptcy or consumer proposal with me that work at the casino. The casino is one of the largest employers in Brantford, so it’s not that surprising that I meet with people who work there. Often they lose their job, are off work for a period of time, and then they finally get a job at the casino, and they are afraid that their wages may be garnisheed, so they file bankruptcy. Their financial problems are not caused by gambling at the casino.

This morning I met with two people who are currently in the bankruptcy process with me, and both of them work at the casino. I asked them how business was, and they both said the same thing:

Booming.

That surprised me; I would have assumed that during a recession people would save their money and gamble less, but apparently that’s not the case. The casino is very busy these days.

I asked both people why they thought the casino was busy during a recession, and they both had the same response: If you have lost your job, and if you have very little money, you are looking for hope. The casino offers hope. They hope that they may win some money and make everything better.

I have no objection to people going to a casino. It’s your money, you can spend it as you wish. I don’t see much difference between spending $100 at the casino, or spending $100 on dinner and movie, or $100 going to a sporting event.

I do worry about people spending money they don’t have, and my two contacts this morning told me that they worry about that as well. If you are spending your Employment Insurance or Welfare cheque at the casino, you’ve got a problem. We all want hope, but that’s not a good way to get it.

Here’s my advice: if you are down on your luck, don’t despair. We are in the worst recession any of us have ever lived through. You are not alone. Everyone else is also worried about losing their job, or not having enough money to pay the bills. Instead of hoping to win by gambling, a better strategy is to follow my three point plan for financial success:

1. Make a budget. Unless you know where your money is going, you can’t control it. Here’s a link to some free personal budgeting tools.

2. Pay off debt. A recession is not the time to be carrying a lot of debt, so pay down your debts as fast as possible. If you have more debt than you can handle, it’s time to investigate your options.

3. Once your debt is under control, start saving money. It’s a lot easier to survive a job loss if you have money in the bank.

There is hope, but in most cases the casino isn’t the solution. It’s fine as entertainment; gambling is not a financial plan. For more information on your options, call my Brantford office at 519-770-4440 or 310-PLAN (no area code required in Ontario), or e-mail me to set up a no charge intitial consultation, and let’s get started.

In the first three months of 2009 there were 125 residents of Brantford that filed bankruptcy, and a further 47 people filed a consumer proposal. That’s a total of 172 filings, as compared to 124 filings during the same period last year.

That means that personal insolvencies in Brantford increased by 38.7% in the first three months of this year.

How does that compare with the rest of the province?

Brantford’s insolvency rate increased by a similar amount to Kitchener (36%), Toronto (39.9%)Windsor (39.5%) and fared much better than Hamilton (47.2%) and London (62.5%).

The Ontario rate was up by 40.7%, so Brantford fared slightly better than the entire province. In Canada consumer insolvencies increased by 35.9%, so Brantford was slightly worse than the national average.

However, the statistics only tell part of the story. In the last week I’ve met with a number of people in Brantford who are worried about losing their home, and they are worried about further job losses. The numbers are bad now, and they worry they may get worse. My message to them is that there is help available, so if you don’t want to be a statistic, give my office in Brantford a call at 519-770-4440, or send me an e-mail, and let’s talk about ways to deal with your debts so you can avoid becoming a statistic.