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Bankruptcy rate drops in January.

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Bankruptcy rate drops in January.

Bankruptcy rate drops in January
4/28/2010
Reference : http://www.thestar.com/business/recession/article/794316–bankruptcy-rate-drops-in-january

Madhavi Acharya-Tom Yew Business Reporter

Bankruptcies fell in January from the month before, a surprising decline – and the biggest in two decades – that experts said is a positive sign for the economy.

There were 7,352 personal and business bankruptcy filings in January, down 9.4 per cent from 8,112 in December. That’s also a decline of 12.4 per cent from January, 2009.

As usual, the vast majority were consumer bankruptcies, according to the data released Monday by the Office of the Superintendent of Bankruptcy Canada.

“The number of insolvencies has shown a decreasing trend over the next last few months and I think it’s a positive thing,” said Andy Fisher, trustee with A. Farber & Partners. “But we’re coming back down from pretty high levels so it’s going to take awhile to come back down to pre-recession levels.”

Bankruptcies tend to decline in December as consumers try to forget their troubles over the holidays, Fisher said. “It’s the holiday season and people are trying to put off the decision and start fresh in the new year with these issues. Also, because of the holidays there’s probably fewer collection agencies calling. They don’t want to be calling someone on Christmas Eve.”

Insolvencies in January have topped December for the last 10 years, the superintendent noted in the report. “The decrease in insolvencies in January 2010 was the largest decrease recorded for January in 20 years.”

In Ontario, which has been particularly hard-hit by the recession, consumer bankruptcies fell 24.5 per cent in January to 2,443. That’s also down 17.2 per cent from 2,952 in January, 2009.

Across the country, proposals, where creditors agree to settle for a portion of the outstanding debt, rose slightly in January to 3,128, up 0.3 per cent from December. That’s up 31.3 per cent from the previous year.

The jump can be attributed to a change in legislation last September that made proposals a more attractive option for many consumers, as well as an improving economy, Fisher said. “You’re probably seeing more people in a better financial situation so a proposal becomes a more attractive option to them.”

The Bank of Canada has, so far, made good on a conditional pledge to keep interest at record low levels to help the recovery take root in the economy.

However, with the housing market, employment and economic growth coming in much stronger than expected in recent months, the central bank is likely to raise rates this summer in order to keep inflation within its target range.

Fisher expects insolvencies to keep declining even as higher interest rates take effect. “I don’t think we’ll get an increase in insolvencies, but I think the decreasing trend will be mitigated,” he said.

Across the country, business insolvencies for the 12-month period ending January 31, 2010, fell by 10.3 percent compared with the 12-month period ending January 31, 2009.

A drop in insolvencies in the agriculture, forestry, fishing and hunting; construction; transportation and warehousing; and information and cultural sectors contributed to the decrease.

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