Consumer Bankruptcies in Canada – A Short History

A Short History of Consumer Bankruptcies in Canada – During the period from 1958 to 1971 the Canadian personal bankruptcy filing frequency was fairly consistent and at an extremely low level for a modern country with an industrial society.

As an example, Canada had six (6) bankruptcies per 100,000 population in 1968, while by contrast, the USA, in 1968, had ninety (90) bankruptcies per 100,000 population.

 

However, many low-income people and families from coast to coast were trapped in impossible debt situations with no relief available.

In 1972, in response to recommendations from a special joint committee of the Senate and House of Commons on consumer credit and a special Senate committee on poverty, the Government came up with the Poor Debtors’ Assistance Program.

A special joint committee of the Senate and House of Commons on consumer credit, under the joint chairmanship of Senator David A. Croll and Ron Basford, MP, had finished hearing briefs and had tabled its report in 1967.

In 1970, the Tasse report on bankruptcy and insolvency was presented, and, in 1971, a special Senate committee on poverty, under the chairmanship of Senator David A. Croll, was hearing about the problems of low income individuals from coast to coast.

For the first time, members of those committees heard of the human tragedy of people and families trapped in impossible debt situations with no relief available.

In the period from 1972 to 1981, the bankruptcy rate rose steeply.

In 1982, the consumer bankruptcy rate jumped dramatically from 23,000 in 1981 to more than 30,000.

This 33% increase over the previous year was caused by the severe worldwide recession. From 1983 to 1985, the bankruptcy rate in Canada fell in response to the strengthening economy.

Since 1985, the consumer bankruptcy rate has risen steeply, hitting record numbers in 1997 and then declining slightly in 1998.

In 2004, the consumer bankruptcy rate in Canada was 2.7 per 1,000 population. This compares with the U.S. bankruptcy rate for the same period of 7.7 per 1,000 population.

British Columbia has the lowest consumer bankruptcy rate of any region in Canada at 2.0 bankruptcies per 1,000 population.

2004 Consumer Bankruptcy Statistics
Comparison with U.S. / Per Capita Rates

(Note: N.W.T., Yukon & Nunavut are omitted.)

Note:

The number of reported US bankruptcies has been increased by 31.9% in order to give the number of people who filed bankruptcy.

In accordance with a study reported in September, 2001, Young, Old, and in Between: Who Files for Bankruptcy? By Dr. Teresa Sullivan, Dr. Deborah Thorne and Professor Elizabeth Warren 31.9 % of the filings for the year ended June 30, 2001 were joint filings of husband and wife.

A similar adjustment for Canada was not required because in Canada joint bankruptcy filings are uncommon.

A Short History of Consumer Bankruptcies in Canada

Jurisdiction

# Bankruptcies

 Population (,000)

# Bankruptcies
per thousand

Atlantic

8,866

2,400

3.7

Quebec

23,145

7,400

3.1

Ontario

30,742

11,900

2.6

Prairies (includes Alberta)

13,240

5,200

2.5

Alberta

8,714

3,100

2.8

B.C.

8,378

4,100

2.0

Canada

84,426

31,100

2.7

U.S. Year Ended Dec. 31, 2004 (Note: 1)

2,062,000

267,000

7.7

A Short History of Consumer Bankruptcies in Canada

There have been many theories to explain why the personal bankruptcy rate has been on the rise since 1985.

The Stigma of Bankruptcy has Lessened
This theory suggests that, because of wider knowledge of the use of the Bankruptcy and Insolvency Act amongst the general population and by specialists, such as Legal Aid, Community Counselors, Credit Counselors, and the legal profession, that more people decide to utilize bankruptcy for debt relief.

The Rate of Consumer Bankruptcy is a Function of the Unemployment Rate
This theory ties a rise in unemployment to an increase in the number of bankruptcies, and is supported by the experiences of the recessions of 1981/82 and 1991/93.

The Rate of Consumer Bankruptcy is a Function of Outstanding Consumer Credit
The people who postulate this theory fall into two sub-categories:
1. Persons who look upon personal bankruptcy as a cost of doing business or a bad debt experience.
2. Persons who might suggest that credit grantors are “authors of their own misfortune” for making credit “too easy”.

The author feels that the rate of consumer bankruptcy in Canada is under control.

In a modern consumer society such as ours, with quite easy access to credit, we must accept the consequences of a certain number of bankruptcies.

Those of those so inclined can compare Canada’s 2004 rate of bankruptcy with the U.S. rate and take solace in the fact that Canada’s bankruptcy rate is almost 1/3 the rate of the U.S.

Where Bankruptcy Began

Critics of bankruptcy give the impression it is a new invention. While there have been important changes to bankruptcy laws in recent years, there is nothing new about people and families suffering under the burden of extreme debt.

The word “bankrupt” is taken from the Italian word bancarupta, which means “bench broken” or “bank broken.”

It is believed this term alludes to the custom in the Medieval Ages of breaking a merchant’s marketplace table upon failure to pay a debt.

While the concept of “acts of bankruptcy” was developed in medieval Italy in response to insolvent traders, the concept of debt repayment is as old as civilization itself.

The Code of Hammurabi, written by King Hammurabi who ruled Babylon between 1792-1750 BC, contained one of the earliest attempts to set rules for settling debts:

If anyone fails to meet a claim for debt, and sell himself, his wife, his son, and daughter for money or give them away to forced labour: they shall work for three years in the house of the man who bought them, or the proprietor, and in the fourth year they shall be set free. Hammurabi’s Code of Laws (ca. 1792 – 1750 BC)

Ancient Greece followed similar methods of debt repayment. However, by the 7th Century BC, the wealthy in and around Athens held so many of the poor in bondage that economic collapse and rebellion appeared likely.

To avert potential disaster, the lawmaker Solon granted amnesty to many of those in bondage and outlawed contracts, which used a person’s liberty as collateral for the debt.

Rome, in the 5th Century BC, studied Solon’s reforms when it decided to codify its laws into the Law of the Twelve Tables.

Julius Caesar scaled down debts, enacted severe laws against excessive interest rates, and relieved extreme cases of insolvency by establishing the laws of bankruptcy essentially as it stands today. 45 BC – The Story of Civilization, Caesar and Christ by Will Durant.

By the time Augustus ruled Rome (31 BC – 14 AD), a debtor could choose to give his property to his creditors, called a cessio bonorum, to avoid being seized himself.

Due to worries about debtors who hid or squandered their property, by 379 AD, this method was only available to debtors whose insolvency was deemed to have been caused by an act of God.

Canada’s rate of consumer insolvencies is considerably lower than in the United States for 2013, the latest year available at the time of writing this article: 3.4 consumer insolvencies per 1,000 population in Canada vs. 4.4 for the US.

About the Author

Earl Sands, Licensed Insolvency TrusteeEarl Sands, MBA, CPA, CGA, CIRP, is a bankruptcy trustee. He founded his bankruptcy firm in 1990.

When he sold his practice in late 2001, his firm had six offices and was handling the largest number of personal bankruptcies and proposals in British Columbia.

Earl owns and operates the top bankruptcy in Canada website.