Bankruptcy Rates Drop - Consumer Proposal Filings Rise

What does it mean when bankruptcy rates drop, while consumer proposal filings rise? 

When people find themselves in significant debt, one of the first steps people take it to max out their credit cards, which causes higher monthly payments in which individuals are paying on the interest, and rarely pay down much of the principal.

Instead of making significant payments towards credit cards, it’s typical to continue paying mortgages and secured loans like vehicle loans, while never making headway on the credit card debt.

Since a consumer proposal focuses on remedying and reducing unsecured debt, a consumer proposal is typically done before the individual is in further debt.

A bankruptcy is often required when the individual has stopped making mortgage payments, can not pay vehicle loans, or is making other late or insufficient payments on their secured debts.

So, when bankruptcy rates drop as consumer proposals rise, it can imply that while just as many Canadians are considered relatively insolvent, they are getting a grasp on their debts earlier in the debt cycle.  

The average debt of a Canadian

On average, consumers in Canada have an average of $23,806 in non-mortgage debt based on the latest Consumer Credit Trends report by Equifax.

That’s nothing to scoff at.

The group of people with the highest amount of debt were those aged 45 to 55 at $36,230 in non-mortgage debt, and those living in Alberta.

Many individuals are able to keep on top of mortgage payments though, so aren’t resorting to the final resort of declaring bankruptcy.

Consumer proposals, which are being filed more often, are often used as a bargaining tool for creditors to recover some of their owned debt. 

Education matters when it comes to debt

One of the reasons that Canadian bankruptcies have decreased steadily over the last decade or so is largely due to education surrounding debt options.

When individuals have more education about their debt consolidation options, they often act sooner, especially as they recognize a bankruptcy is the last step, and there are multiple other steps that can be taken earlier on. 

Equifax noted that consumer proposals continue to be on a strong rising trend, and in the last quarter of 2019, “The 90-day-plus delinquency rate for non-mortgage credit rose 9.7 per cent to 1.15 per cent,” with British Columbia, Ontario, and Alberta having the most significant increase in delinquency. 

Consumer proposals are likely to continue to grow, especially as so much is unknown about the economy, and job security is put at risk throughout 2020.

While there are fewer bankruptcies being declared, a consumer proposal is often the last step before a bankruptcy.

If you happen to be struggling to make ends meet, being proactive can be hugely effective towards your finances.

Ending the debt cycle begins by contacting a debt counselor to help you get set up with a firm budget you can stick to.

If you are thinking about filing for a consumer proposal, reach out to Bankruptcy Canada to see what options you may have, and speak with a licensed insolvency trustee with no obligation to see what debt relief services we can offer you. 

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