Bankruptcies in Newfoundland & Labrador

Understanding Bankruptcies in Newfoundland & Labrador: A Comprehensive Guide

Bankruptcy in Newfoundland & Labrador is a legal process governed by the Bankruptcy and Insolvency Act (BIA) 1. The Superintendent of Bankruptcy oversees all bankruptcy proceedings in the province, which can be either personal or corporate 2 3Personal bankruptcy is an option for individuals who are unable to pay their debts as they come due, while corporate bankruptcy is filed by businesses that are unable to meet their financial obligations 4 5. In Newfoundland & Labrador, licensed bankruptcy trustees handle bankruptcy filings and provide guidance to help individuals and businesses understand their options 6 13.

The bankruptcy process in Newfoundland & Labrador involves the debtor assigning their assets to the trustee, who then sells them to pay off the debtor’s creditors 7. Debtors are required to make surplus income payments to their trustee for the duration of their bankruptcy, which typically lasts nine months for a first-time bankrupt but can be extended to 21 months if the debtor has surplus income 8 9. While bankruptcy can provide debt relief and allow for a fresh start, it also has serious consequences, such as the loss of assets and damage to credit ratings 10 11. It is crucial to explore all alternatives to bankruptcy, such as debt consolidation, consumer proposals, and credit counselling, before making a decision 12. The Newfoundland & Labrador government provides resources and information on bankruptcy and other debt relief options to help residents find the best solution for their specific situation 14.

Recent Statistics on Bankruptcies and Proposals

Recent statistics reveal a concerning trend in bankruptcies and proposals in Newfoundland & Labrador:

  • The number of bankruptcies and proposals increased by more than 15% from April to June 2015 compared to the same period in 2014 6.
  • The Avalon Peninsula saw the biggest increase with over 26.5% in the number of bankruptcies and proposals 7.
  • The delinquency rate in Newfoundland & Labrador, as reported by Equifax, is one of the highest in Canada at 1.16% 8.
  • Insolvency rates in Canada are currently at 4.3%, with 1.9% being bankruptcies and 2.4% being consumer proposals 9.

Factors influencing insolvency rates include job loss, divorce, money mismanagement, illness, mass layoffs, price inflation, and growing interest rates 10. The highest insolvency rates are in Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, and Quebec 11.

The rate of personal insolvencies in Newfoundland and Labrador has significantly increased since 2014, largely due to a struggling economy 15. Approximately 6,000 people in the province have filed for insolvency in the past two years 16. Between 2015 and 2022, insolvency rates in Newfoundland and Labrador have fluctuated, with a peak in 2019 (7.6 per 1,000 population) and a low in 2021 (3.9 per 1,000 population) 19.

Factors Contributing to the Increase

Several factors have contributed to the increase in bankruptcies and insolvency rates in Newfoundland & Labrador over the years:

  1. Historical Factors:
    • High National Debt: The First World War increased Newfoundland and Labrador’s debt by $35 million due to the cost of raising, equipping, and training its own overseas regiment 3.
    • Political Instability: The period following the First World War was marked by political upheaval with rival parties debating conscription and scandal becoming commonplace at the House of Assembly 3.
    • Railway Costs: The Newfoundland Railway added to the country’s mounting national debt. By 1929, government spending on the railway and First World War accounted for approximately two thirds of Newfoundland and Labrador’s $80-million national debt 3.
    • Borrowing from Foreign Investors: Despite operating on a constant budget deficit, the Newfoundland and Labrador government borrowed heavily from foreign investors throughout the 1920s to help diversify the country’s economy, leading to more debt 3.
    • Increasing Interest Payments: By 1927-28, interest payments were absorbing more than 40 per cent of Newfoundland and Labrador’s income, leaving little money for other essential services 3.
  2. Economic Factors:
    • Global Economic Recession: A global economic recession following the First World War significantly damaged Newfoundland and Labrador’s export-based economy, particularly the international market for dried cod 4.
    • The Great Depression: Following the stock market crash in 1929, Newfoundland and Labrador’s exports earnings dropped from $40 million in 1930 to $23.3 million in 1933. The fishery suffered particularly heavy losses 4.
    • Unemployment: Low profits forced many companies to lay off workers, but the government had little money to spend on social services or other programs to help the public withstand the depression 4.
    • Low oil prices and struggling economies, particularly Alberta’s, have also contributed to the increase in insolvency rates 5 7.
  3. Recent Factors:
    • The COVID-19 pandemic has had a substantial impact on business dynamics, leading to the temporary or permanent closure of many businesses 6.
    • Decreasing house values have made it difficult for tradespeople to find employment 1.
    • Mental health issues resulting from the stress of financial difficulties are also a significant concern 1.
    • Financial troubles often start with simple purchases made on credit, leading to unsecured debt 1.
    • Surprise events, such as medical emergencies, marital breakdowns, or missed work due to unforeseen circumstances, can push individuals over the brink into insolvency 1.

The Impact on Residents

The COVID-19 pandemic has had a significant impact on the residents of Newfoundland & Labrador, with the unemployment rate climbing to 14.1% in 2020, a notable increase from 15.7% in 2019 8. Public health restrictions throughout 2021 dampened activity in various industries, including tourism, restaurants, and personal services 8. Higher prices for energy products since the start of 2022 have translated into increased costs for food and other items, placing considerable limits on consumer spending beyond the bare necessities 8.

Residents of Newfoundland and Labrador are subject to provincial legislation when it comes to what they can keep in a bankruptcy 9. It is recommended to contact a licensed trustee who is an expert on the province’s bankruptcy regulations for guidance 9. Bankruptcy professionals in St. John’s provide free initial consultations to help evaluate options 9. Financial stress is not unique to this province, with nearly half of Canadians being $200 away from insolvency, and 55% in Atlantic Canada 1.

The impact of the financial situation on residents is significant:

  • 53% of Newfoundland and Labrador residents expect the province to go bankrupt in the next few years 7.
  • The government is considering closing health care clinics and schools in rural areas due to high operational costs 7.
  • The elderly population in rural areas like St. Lewis cost the province a lot for health care 7.
  • The government can’t raise taxes enough to pay the bills, and none of the elected leaders are willing to cut spending enough to balance the books 7.

Despite the challenges, there are some positive aspects for residents who file for bankruptcy:

  • Many people who file for bankruptcy can stay in their homes.
  • In Newfoundland and Labrador, RRSPs can be kept even when filing for bankruptcy.
  • Many people who file for bankruptcy are able to keep their vehicles.
  • Most bankruptcies are not published in the newspaper.
  • Student loans can be included in a bankruptcy if they are more than seven (7) years old.

Pros and Cons of a Newfoundland Bankruptcy 2:

Pros Cons
A fresh financial start Credit is ruined for at least seven years
Consumer financial counselling to help manage finances and avoid future debt issues Most creditors will not extend loans during this period
Debt collectors are prohibited from calling Some property must be surrendered, although essential household furnishings (up to $4,000) and medical devices can be kept

Alternatives to Bankruptcy

For individuals struggling with debt in Newfoundland & Labrador, there are several alternatives to bankruptcy that can provide relief and help them regain financial stability. One popular option is a Consumer Proposal, a legally binding agreement negotiated between the individual and their creditors through a Licensed Insolvency Trustee 15. This arrangement allows the individual to repay a portion of their debts over a specified period, usually up to five years, while keeping their assets 15. The advantages of a Consumer Proposal include:

  1. More affordable way to repay debts 15
  2. Stops wage garnishments and collection calls 15
  3. Allows the individual to keep their assets 15
  4. Has less of an impact on the individual’s credit rating compared to bankruptcy 15

To qualify for a Consumer Proposal, the individual must owe less than $250,000 (excluding mortgage debt) and demonstrate an inability to repay their debts 15. A Consumer Proposal will remain on the individual’s credit report for three years after completion 15.

Other debt relief options available in Newfoundland & Labrador include:

  • Informal Debt Settlement: Negotiating with creditors to change the terms of an outstanding debt, such as asking for a lower interest rate, a lower minimum repayment, or a one-off payment as a full and final settlement.
  • Debt Management Plan (DMP): A credit counselor assesses the individual’s finances, determines an affordable monthly payment, and assists in communicating with creditors to lay out the terms of the proposed plan.
  • Debt Consolidation: Taking out a new loan to pay off existing debts, aiming to secure a lower interest rate and reduce overall payments. This option requires a good credit rating 13.

MNP LTD, a Licensed Insolvency Trustee firm, offers various debt relief services, including Consumer Proposals, Debt Consolidation, Credit Counselling, Debt Management Plans, Debt Settlement, and Bankruptcy 13. Bankruptcy Canada also provides an exhaustive guide to understanding the various debt relief options available in Newfoundland 14. Additionally, the Newfoundland and Labrador Debt Reduction Grant Program is available for students struggling with loan repayments 14.

The Process of Filing for Bankruptcy in Newfoundland & Labrador

The process of filing for bankruptcy in Newfoundland & Labrador involves several steps and the guidance of a Licensed Insolvency Trustee (LIT) 20. MNP LTD, a Licensed Insolvency Trustee firm, provides assistance with declaring bankruptcy in the province 13. The process typically includes:

  1. Consultation with a Trustee: The individual meets with an MNP LTD Licensed Insolvency Trustee to review all available options 17. The Trustee informs the individual about the effects of bankruptcy and prepares necessary documents for filing the assignment in bankruptcy 21.
  2. Filing Paperwork: The Trustee guides the individual through the process, which includes filing necessary paperwork, attending two counselling sessions, providing tax information, and paying necessary amounts 17. Once bankruptcy is legally filed, harassing collection calls from creditors should stop, and any existing garnishees are lifted 17.
  3. Meetings and Counselling: If required by at least 25% of creditors, a creditors’ meeting is organized, which the bankrupt has a duty (if required) to attend 21. The Trustee arranges for counselling during the bankruptcy to help create a budget and understand the causes of bankruptcy 21.
  4. Duties of the Bankrupt: The bankrupt must reveal and turn over to the Trustee any assets in their possession or control that are not exempt from seizure 21. The cost of filing bankruptcy in Newfoundland is determined by the individual’s income and family size 20. High-income earners may have a longer and more costly bankruptcy process due to surplus income 20.
  5. Discharge Process: The vast majority of people who file for bankruptcy are discharged (released from responsibility) from most or all of their debts nine months after filing for bankruptcy 21. The bankruptcy process typically lasts between 9 and 21 months 17.

It is important to note that bankruptcy exemptions in Newfoundland & Labrador protect certain assets, such as:

  • Food and fuel for you and your dependants for the coming 12 months
  • All medical and dental aids for your household
  • Clothing for your household to the value of $4,000
  • Appliances and household furnishings worth up to $4,000
  • One motor vehicle worth less than $2,000
  • All pets
  • Items of sentimental value up to the value of $500
  • Up to $10,000 of equity in your main place of residence
  • Tools of your trade up to $10,000
  • Certain income and pension plans
  • Farming, fishing, and fish farm exemptions include personal property used by you to earn an income, to the value of $10,000 20

Life After Bankruptcy

After being discharged from bankruptcy, individuals can begin rebuilding their credit history 16. Some lenders may allow loans immediately after discharge, but likely at a higher interest rate and with a co-signer 17. Mortgages can also be obtained shortly after bankruptcy, but with similar conditions 17. Improving credit rating by saving for a down payment and showing proof of steady employment income can help secure a mortgage 17.

Secured credit cards can be an effective tool to improve credit rating and score if used responsibly 16. Making regular monthly payments on a secured card will result in a report to the credit bureau about credit usage and repayment 16. After a short while, qualification for unsecured debts at low-interest rates and secured debt such as a car loan or mortgage is possible 16.

To stay debt-free after bankruptcy, consider the following key points 22:

  1. Budgeting: Track income and expenses on a monthly basis, including all monthly expenses such as groceries, gas, utilities, etc. Make sure not to overspend 22.
  2. Saving: Plan and prepare for unexpected costs, such as home repairs or vehicle maintenance, and contribute to savings monthly 22.
  3. Responsible Credit Use: After being discharged from bankruptcy or a consumer proposal, dedicate oneself to rebuilding credit by getting prepaid credit cards and making all payments on time 22.

Benefits of bankruptcy include the powerful protection for the bankrupt known as the Stay of Proceedings, which prevents unsecured creditors from taking steps to collect on their debts, stops bill collectors from phoning, interest from accruing, and wage garnishments 16. Debt relief is offered by Bankruptcy Canada through free consultations with a Licensed Debt Relief Expert 16.

Conclusion and Advice

Bankruptcy and insolvency rates in Newfoundland & Labrador have been on the rise due to various historical, economic, and recent factors. The impact on residents has been significant, with many struggling to make ends meet and facing the possibility of losing essential services. However, there are alternatives to bankruptcy, such as Consumer Proposals, Debt Management Plans, and Debt Consolidation, which can provide relief and help individuals regain financial stability.

Filing for bankruptcy in Newfoundland & Labrador is a process that requires the guidance of a Licensed Insolvency Trustee. While bankruptcy can offer a fresh start and protection from creditors, it is crucial to understand the long-term consequences and work towards rebuilding credit and staying debt-free. By seeking the right assistance, making informed decisions, and adopting responsible financial habits, individuals in Newfoundland & Labrador can overcome the challenges of bankruptcy and work towards a more stable financial future.

FAQs

What types of debt are non-dischargeable in bankruptcy? When you file for Chapter 7 bankruptcy, it can clear many of your debts, such as credit card debt, medical bills, and unsecured loans. However, certain types of debt cannot be eliminated, including child support, spousal support obligations, student loans, judgments for damages due to drunk driving accidents, and most types of unpaid taxes.

Are there any assets that are exempt from seizure in a bankruptcy? Yes, there are assets that are protected and cannot be taken by creditors in a bankruptcy. These include items such as your furniture, Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), and any other investments in retirement accounts (with the exception of contributions made in the last 12 months). Additionally, tools necessary for your trade or profession are typically exempt.

Does filing for bankruptcy mean I will lose all my possessions? No, filing for bankruptcy does not mean you will lose all of your assets. You may be able to retain ownership of your house, car, and other possessions. Most individuals are able to keep household furnishings, retirement accounts, and some equity in their home and vehicle when they declare bankruptcy.

What is the monthly cost of a bankruptcy? The monthly cost of a bankruptcy can vary depending on your income. If you have surplus income, you will not pay the standard bankruptcy fee of $2,700 plus your surplus income. Instead, you will pay either $200 per month for 21 months (totaling $4,200) or your surplus income amount for 21 months, whichever is higher.

References

[1] – https://www.cbc.ca/news/canada/newfoundland-labrador/insolvency-rates-doubled-1.5460942 [2] – https://www.debt.ca/bankruptcy/newfoundland [3] – https://www.heritage.nf.ca/articles/politics/depression-origin.php [4] – https://www.cbc.ca/news/canada/newfoundland-labrador/bankruptcy-possible-unless-n-l-chops-spending-says-economist-1.3405500 [5] – https://www.cbc.ca/news/canada/newfoundland-labrador/insolvency-rates-up-as-oil-prices-collapse-1.3468904 [6] – https://www150.statcan.gc.ca/n1/pub/36-28-0001/2023010/article/00005-eng.htm [7] – https://nationalpost.com/news/canada/the-rock-on-the-rocks-newfoundland-labrador-bankruptcy [8] – https://publications.gc.ca/collections/collection_2022/servcan/SG3-13-2022-eng.pdf [9] – https://www.bankruptcy-canada.ca/bankruptcy-newfoundland [10] – https://theindependent.ca/commentary/analysis/when-bankruptcy-is-on-the-table-its-not-a-normal-election/ [11] – https://macleans.ca/news/canada/why-the-b-word-bankruptcy-popped-up-in-the-newfoundland-election-campaign/ [12] – https://www.cbc.ca/news/canada/newfoundland-labrador/nl-fiscal-problems-election-2021-1.5897364 [13] – https://bankruptcy.mnpdebt.ca/bankruptcy/nl [14] – https://bankruptcycanada.com/debt-relief-canada/newfoundland/ [15] – https://www.bankruptcy-canada.ca/after-bankruptcy [16] – https://bankruptcycanada.com/is-there-life-after-bankruptcy-discharge/ [17] – https://bankruptcy.mnpdebt.ca/faqs/what-happens-after-bankruptcy [18] – https://debtsolutions.bdo.ca/solutions/bankruptcy/ [19] – https://bankruptcycanada.com/will-bankruptcy-stop-a-lawsuit/ [20] – https://bankruptcycanada.com/bankruptcy-newfoundland/ [21] – https://janesnoseworthy.ca/filing-for-bankruptcy/ [22] – https://mnpdebt.ca/en/resources/mnp-debt-blog/life-after-debt [23] – https://www.noelrandrewsbankruptcynl.ca/