You might be wondering why the consumer insolvency rates of each Canadian province are important for you to both know and understand. The short answer is that these rates are indicative of how the Canadian economy is working. And whether you know it or not, the Canadian economy directly affects how you live. Let’s put it this way, if the insolvency rates of each province are currently high then that means the average Canadian is having more and more trouble with their debts, which in return tells us that there is potentially an overriding issue affecting Canada as a whole.
Insolvent Canadian families will in the future have more difficulty being approved for unsecured credit and may have issues with taking home enough income to live. No unsecured credit and less income can mean that consumption will also be low. When Canadians consume less the economy is affected. Furthermore, when insolvency rates are higher financial institutes, banks and lenders will potentially experience more charge-offs (credit accounts that cannot be paid). More charge-offs mean these lenders will reduce how many people they lend to or increase their rates which can, in turn, lead to higher insolvency rates. Thankfully, annual insolvency rates in Canada have been dropping.
As you can see everything is connected, the insolvency rates of each province might seem like useless or trivial information but in fact, these rates do affect the financial issues that you, as a Canadian, deal with on a daily basis. To help you get a better grasp on the statistics we’ve put together all the information you should know.
Insolvency
Insolvency is a term used to refer to a person who cannot pay back the money that they owe on time. Someone who is insolvent is not yet bankrupt but will probably either become bankrupt by filing for bankruptcy on their own or be petitioned into bankrupt by their creditors. Someone who has been deemed insolvent might also file a consumer proposal.
The Canadian insolvency rate for the year 2013 was 4.3%. Four of the 13 provinces and territories had higher insolvency rates than the national average, New Brunswick 6.6%, Nova Scotia 6.2%, Quebec 6.2% and Prince Edward Island 5.3%. The rest of the country’s insolvency rates were either on par with the national average or significantly lower, with Nunavut having the lowest rate of 0.3%.
Remember that these numbers represent the percentage of Canadians who were unable to pay back their debts, now let’s compare these numbers to the statistics on people who actually filed for bankruptcy or filed a consumer proposal.
Bankruptcy
Once an insolvent person has decided that there is no way they can pay off their debt on their own, they can decide to file for bankruptcy. Bankruptcy is a legal proceeding meant to resolve the debt between a borrower and a creditor. Depending on the amount of debt you have and the kind of assets you own, some of your debt will be discharged and some you’ll have to pay.
Of the 4.3% of Canadians who were insolvent in 2013, 2.5% filed for bankruptcy. As bankruptcy is widely considered a choice that should only be made in extreme cases, it’s interesting to see that more than half of the insolvent Canadians in 2013 chose bankruptcy. The four provinces with the highest insolvency rates also have the highest rates of bankruptcy: New Brunswick 4.8%, Nova Scotia 4.4%, Quebec 3.9%, and Prince Edward Island 3.8%. Across the whole country, the bankruptcy rates were higher than the consumer proposal rates.
Consumer Proposal
In cases where bankruptcy might seem like an extreme and unnecessary measure, a solvent person can choose to file a consumer proposal. To file a consumer proposal you must get the help of a trustee who will create a proposal for your creditors on your behalf. The proposal is legally binding and will protect you from debt collectors. You’ll have to pay an agreed-upon portion of your debt and your creditors will forgive the remaining balance.
For more information about consumer proposals watch our video “Understanding Consumer Proposals“.
Compared to the Canadian bankruptcy rates the consumer proposal rates are significantly lower, 1.8% in 2013. It’s clear that the majority of solvent Canadians believed that their financial situation was so dire that bankruptcy was the best option for them. The situation is the same in each province with Ontario having the highest percentage of 2.3%.
Insolvency rates, bankruptcies, and consumer proposals might all seem like foreign concepts to you and that they have nothing to do with you or your finances. What we want you to understand is that all these numbers and statistics affect all of Canada, which means they affect you too. More knowledge about how the Canadian economy works and how it affects your world will allow you to make the best financial choices today and for the future.
