Canadian bankruptcy filings fall as economy improves
From Saturday’s Globe and Mail
Published Friday, Mar. 18, 2011 1:16PM EDT
Last updated Friday, Mar. 18, 2011 5:21PM EDT
Insolvencies dropped in Canada last year as consumers and businesses benefited from improving economic conditions to avoid bankruptcy.
But the trend remains far worse than pre-recession levels, according to new data released Friday by the federal Office of the Superintendent of Bankruptcy, and the improvement comes from an especially weak base in 2009.
Insolvencies fell 11.5 per cent in Canada in 2010, with 140,234 new cases filed compared with 158,441 cases in 2009. Consumers accounted for the vast majority of the cases – 135,008 last year, down 11 per cent from 151,712 in 2009. Business insolvencies dropped an even larger 22.3 per cent in 2010 to 5,226 cases from 6,729 cases in 2009.
The bankruptcy superintendent defines insolvencies as both bankruptcies and formal agreements to settle debts, known as proposals.
While trends were broadly positive in 2010, the volume of insolvencies still remains higher than pre-recession levels, the bankruptcy superintendent said.
Insolvencies in 2010 were 20.6-per-cent higher than during the 12-month period ending September, 2008, just before the economic downturn began. Insolvencies spiked 29 per cent in 2009 to 158,441 cases compared with 123,234 cases in 2008.
The figures showed some strengthening as the months progressed through 2010, however, with December insolvencies falling almost 17 per cent from November levels.
Bankruptcy trustee Marvin Zweig, senior vice-president at accounting firm Meyers Norris Penny Ltd., said he is not yet convinced there has been a broad turnaround in insolvencies in Canada.
He said a flood of new companies have emerged offering to help consumers informally restructure their debts. Their work may be deferring or delaying formal bankruptcy or proposal filings, Mr. Zweig said, but it still means many people are essentially insolvent.
“I think the results are worse than the numbers are showing,” he said. “I think there are a lot of people who are insolvent and are going through a process to deal with their debts, but they aren’t necessarily at this time filing assignments in bankruptcy or proposals.”
Mr. Zweig said the new debt-restructuring firms are especially active in the Toronto area, which he believes helps account for some of the drop in cases recorded in Ontario last year.
Ontario saw the biggest improvement last year, with total insolvencies dropping 16 per cent as hard-hit manufacturing and other sectors posted improvements. Ontario insolvencies fell to 58,479 cases from 69,494 in 2009.
Prince Edward Island was the only province to record an increase last year, with insolvencies climbing to 598 cases from 577 in 2009.
Mr. Zweig said he is still seeing a large number of seniors among those filing for bankruptcy, with many living on government pension allowances and using their credit cards for necessities like food and clothing.
A 2006 study funded by the Office of the Superintendent of Bankruptcy concluded seniors are the fastest growing category of personal bankruptcies in Canada, accounting for one in nine new filings.
“I’m certainly seeing it in my practice,” Mr. Zweig said. “Unfortunately a lot of people when they retire are forced to live on government pension, and unfortunately it doesn’t cut it and they start to rely on their credit cards … They can only go so long in juggling the minimum payments, and eventually they have no choice but to deal with their debt.”
The latest figures also show the impact of new rules introduced in September, 2009, that have shifted the balance between bankruptcy filings and restructuring proposals.
The bankruptcy superintendent said 43,268 consumers filed debt-restructuring proposals in 2010, up 18 per cent from 36,640 cases in 2009.
Many people who might have filed for bankruptcy in the past to clear their debts are now opting for restructuring because bankruptcy standards have been toughened, especially for people who are deemed to have surplus income when they are insolvent, Mr. Zweig said.
Restructuring proposals allow debtors – including individuals with debts under $250,000 – a greater ability to settle their obligations while retaining assets and avoiding the black mark of a bankruptcy on their files. A bankruptcy filing stays on an individual’s credit record for longer than a proposal.