How to Navigate Bankruptcies in Prince Edward Island, PEI: A Step-by-Step Guide

Bankruptcy is a legal process in PEI for individuals who cannot pay their monthly debts, and it should be the last option after exploring all other debt relief alternatives ¹. In Prince Edward Island, bankruptcy is a legal process designed to help those experiencing financial difficulties and are unable to pay their bills, allowing them to eliminate their debts and start fresh.

This step-by-step guide will navigate the complexities of bankruptcies in Prince Edward Island, PEI, providing a comprehensive understanding of the current state of bankruptcies in the province, definitions and processes, reasons behind the rise in bankruptcies, the impact on individuals and families, available debt relief options, and success stories of life after bankruptcy.

The Current State of Bankruptcies in PEI

Prince Edward Island (PEI) has experienced significant changes in bankruptcy and consumer proposal filings in recent years. Bankruptcies in P.E.I. decreased by nearly 29% from Q3 2022 to Q3 2023, while Consumer Proposals increased by nearly 34% during the same period ². The number of personal bankruptcies in 2020 was down more than 40% compared to the same period in 2019, with the drop beginning in March and reaching over 60% from April to July ³.

However, the trend reversed in 2022, with a 15% increase in bankruptcies and a rise of approximately 60 consumer proposals ⁴. Calls to Licensed Insolvency Trustee offices have also increased by 40 to 50% since the fall ⁴. From December 2022 to December 2023, total bankruptcies in PEI decreased by 33.3%, with 6 bankruptcies in December 2023, a decrease of 14.3% compared to November 2023 and a decrease of 57.1% compared to December 2022 ⁵.

On the other hand, total proposals in PEI from December 2022 to December 2023 increased by 37.8%, with 24 proposals in December 2023, an increase of 36.8% compared to November 2023 but a decrease of 7.7% compared to December 2022 ⁵. PEI saw an 11.1% decrease in bankruptcies from Q4 2022 to Q4 2023, and total insolvencies decreased by 13.5%, which is higher than the national average of 5.5% ⁶. In 2023, the bankruptcy rate in Prince Edward Island is 0.50% ⁷, and in August 2023, consumer proposal filings represented 78.9% of all consumer insolvencies, with a 34.9% increase in total consumer proposals from August 2022 to August 2023 ⁸.

The most active Forward Sortation Areas (FSAs) in August 2023 are:

• C0A (Charlottetown Rural Area)
• C0B (Summerside Rural Area)
• C1N (Summerside)
• C1A (Charlottetown SE Prince Edward Island Prov Govt)
• C1B (Stratford)
• C1C (Charlottetown North)
• C1E (Charlottetown West) ⁸

Understanding Bankruptcy: Definitions and Processes

Bankruptcy is a legal process regulated by the Bankruptcy and Insolvency Act (BIA), which can be accessed in various formats, including HTML, XML, and PDF ^9 10. The BIA includes provisions related to the discharge of bankrupts and definitions such as Bankrupt, Bankruptcy, Creditor, Current Assets, and Date of Bankruptcy ^9 10.

To file for bankruptcy in PEI, an individual must:

1. Work with a licensed bankruptcy trustee who will assess their situation to determine if they qualify for bankruptcy protection ¹.
2. Complete the required forms with the trustee’s help and file them with the Office of the Superintendent of Bankruptcy (OSB) ¹.
3. Once accepted by the court, the individual will be formally declared bankrupt and receive an automatic stay, preventing creditors from contacting them or collecting on debts ¹⁶.
4. Attend two financial counselling sessions and report income and expenses each month ¹.
5. Submit excess income to the trustee if their income exceeds the OSB’s standard ¹⁶.

The bankruptcy process involves:

• Eliminating all unsecured debt, such as credit cards, bank loans, tax debts, unpaid bills, and payday loans ^16 17.
• Non-exempt assets being sold by the trustee, with the money raised put in a trust for creditors ¹.
• Secured debts, such as vehicle loans, mortgages, and home equity lines of credit, typically not being included in a bankruptcy ^16 17.
• A stay of proceedings protecting the bankrupt’s assets so the Trustee or Proposal Administrator can deal with them in an orderly fashion ^16 17.

Reasons Behind the Rise in Bankruptcies

Several factors have contributed to the rise in bankruptcies in Prince Edward Island, including:

1. Inflation and rising costs of living: The main contributors to the increase in the Consumer Price Index (CPI) in P.E.I. include mortgage interest costs, food from restaurants, vehicle insurance premiums, purchase/leasing of vehicles, and vehicle parts, maintenance, and repairs ². Factors contributing to Prince Edward Island household debt include inflation, living wages, house prices, and mortgage rates ².
2. End of the “debt holiday” during the pandemic: The early stages of the pandemic saw people receiving more support from federal and provincial governments, with creditors deferring payments, creating a ‘debt holiday’. However, this period is now over ⁴. Debts that were present at the beginning of the pandemic, along with added interest, are still prevalent and causing issues for individuals ⁴.
3. Rising interest rates: Rising interest rates and inflation have contributed to a ‘perfect storm’ for many people, exacerbating their financial struggles ⁴. The Bank of Canada raised its benchmark rate to 5 per cent in July, its 10th hike since March 2022, leading to rising borrowing costs for homeowners and small businesses ¹⁸. The rising interest rates are making it difficult for people to cover basic necessities, forcing them to live ‘week to week or month to month’ ¹⁸.
4. Unsustainable debt management practices: Many individuals are taking cash advances on one card to pay off another, which is not a sustainable solution ¹⁸.
5. Unexpected expenses: Unexpected expenses, such as auto repairs, changes in relationship status, illness, and education costs, are causing financial stress for Atlantic Canadians ¹⁹.
6. Low productivity and profitability of businesses: Low productivity businesses make up 68.8% of exits on average from 2004 to 2009 ⁷. Approximately 72% of bankruptcies occur among companies demonstrating low profitability ⁷.

Impact of Bankruptcy on Individuals and Families

Bankruptcy can have a significant impact on individuals and families in Prince Edward Island. The average debt (excluding mortgages) for P.E.I. residents is $22,247, which is slightly higher than the national average of $21,013 ². Delinquency rates for P.E.I. residents have increased by nearly 22%, less than the national average of 29% ². The debt service ratio for Islanders in 2021 was 4.12%, well below the Canadian average of 5.98% ²¹.

Debt often isolates people emotionally and socially, causing anxiety and stress ¹⁹. However, bankruptcy can provide relief from these emotional burdens. James’ story highlights the emotional relief and improved credit that can come after bankruptcy ²⁰. Life after bankruptcy in Nova Scotia can bring emotional relief, improved credit, relief from collection calls, and future borrowing potential ¹².

When filing for bankruptcy in PEI, certain exemptions apply, including:

• A motor vehicle up to $3,000 in equity
• Food and other household items up to $2,000 in equity
• Clothing for the bankrupt and their family
• RRSPs (contributions in the 12 months prior to filing bankruptcy are not exempt) ¹

Once all obligations have been met, you can be discharged from bankruptcy, and your debts will be eliminated. However, bankruptcy carries a severe impact on your credit rating, and the bankruptcy notation will remain on your file for 6-14 years after you are discharged from bankruptcy.

Available Debt Relief Options

Prince Edward Island offers various debt relief options for individuals struggling with financial difficulties. These include:

1. Bankruptcy: Filing for bankruptcy in PEI costs at least $1,800 ¹. Declaring bankruptcy enables you to get out of debt in 9-21 months, but it remains on your record for 6 years (14 years if it’s your second bankruptcy) ²³. MNP LTD, a Licensed Insolvency Trustee, can help individuals declare bankruptcy in Charlottetown, PEI ¹⁴.
2. Consumer Proposal: A consumer proposal is an alternative to bankruptcy where you repay a portion of your debts over a three to five year period, with creditors usually accepting the proposal as they will receive more money than if you go bankrupt ¹. Consumer Proposal allows you to pay back a portion of your debt within 5 years while keeping certain assets, and it remains on your record for 3 years after your last payment ²³.
3. Debt Consolidation: Debt Consolidation involves refinancing your home or applying for a loan to cover your debts, setting up an affordable single monthly payment at a fixed, reduced interest rate ²³.

Other debt relief services in Prince Edward Island include ¹¹:

• Credit Counselling
• Debt Management Plan
• Debt Settlement
• Corporate Bankruptcy
• Corporate Insolvency

Types of debt that can be addressed include car loan debt, cellphone debt, credit card debt, line of credit, medical debt, mortgage debt, payday loan debt, secured debt, student loan debt, tax debt, and unsecured debt ¹¹.

Potential benefits of debt relief solutions in Prince Edward Island include reducing debt by up to 80%, stopping creditor calls immediately, and receiving expert support from Licensed Insolvency Trustees ¹¹. PEI Insolvency Trustees, licensed by the federal government, can assist with filing bankruptcy and all alternatives to bankruptcy ¹.

Several companies offer free consultations to help individuals understand their debt relief options:

• Allan Marshall & Associates Inc: Call 1 (888) 371-8900 or use the live website chat ²². They have helped individuals and families with financial problems since 1979 ²⁰.
• Bromwich+Smith: Offers a free, no-obligation consultation to help individuals understand their debt relief options, including Consumer Proposals and Bankruptcy ²⁴.
• BDO Debt Solutions in Charlottetown: Offers services such as Debt Counselling, Budgeting, Debt Consolidation, Debt Management, Debt Settlement, Consumer Proposals, and Bankruptcy ²⁵.
• MNP LTD: Provides free consultations across the country for those in need of financial assistance ²⁶. Contact your local MNP LTD office in Prince Edward Island for a free consultation ¹⁴.

Success Stories: Life After Bankruptcy

Bankruptcy can provide a fresh start for those struggling with unmanageable debt in Prince Edward Island. By filing for bankruptcy, PEI debtors can receive a discharge within 9 months, effectively writing off their debts ¹. This process offers a chance to rebuild financial stability and move forward with a clean slate.

One success story is that of James, a resident of Prince Edward Island who found relief from debts incurred after a divorce through bankruptcy ²⁰. As a client of Allan Marshall & Associates, a company that serves Prince Edward Island along with other provinces in Canada, James’ story illustrates a personal bankruptcy recovery journey ²⁰.

Rebuilding credit after bankruptcy is possible by:

• Paying bills on time
• Budgeting wisely
• Monitoring credit reports
• Using secured credit cards responsibly
• Seeking guidance from a financial expert ¹²

Bankruptcy may be the right choice if an individual is facing:

• Unmanageable debt
• No viable alternatives
• Long-term benefits outweigh short-term challenges
• Meeting legal requirements for filing ¹²

Conclusion

Navigating the complexities of bankruptcy in Prince Edward Island can be a daunting task, but understanding the process, reasons behind the rise in bankruptcies, and the impact on individuals and families is crucial. By exploring the various debt relief options available, such as bankruptcy, consumer proposals, and debt consolidation, those struggling with financial difficulties can find a path towards a fresh start. With the guidance of Licensed Insolvency Trustees and the potential for emotional relief and improved credit, life after bankruptcy can offer a renewed sense of financial stability.

As the current state of bankruptcies in PEI continues to evolve, it is essential for individuals to seek the necessary support and take proactive steps towards managing their debt. By learning from the success stories of others who have overcome financial challenges through bankruptcy, those facing similar struggles can find hope and motivation to embark on their own journey towards financial recovery. With the right tools, resources, and mindset, navigating bankruptcies in Prince Edward Island can lead to a brighter, more stable financial future.

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References

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