The number of consumer proposals and bankruptcies filed by Canadian consumers is on the rise, according to a report released by the Office of the Superintendent of Bankruptcy Canada.
The total number of insolvencies filed hit 11,641 this October, a 9% increase from the year before, and a 16% increase from just one month prior, in September of this year. Of those 11,641 insolvencies, more than half (6,558) were consumer proposals, and 5,083 were bankruptcies.
A consumer proposal is a formal agreement under the Bankruptcy and Insolvency Act. It’s an alternative to bankruptcy, where, along with a licensed insolvency trustee, the borrower makes a formal debt repayment plan to pay back a portion of all the unsecured debt they owe, and the lender forgives the rest.
All unsecured debts, like personal lines of credit and credit cards, must go in to this proposal. Secured debts that are backed by an asset, such as a mortgage or a car loan, stay out. The insolvency trustee is paid out of the funds that are distributed to your creditors, not by an upfront or separate fee.
Consumer proposals have been increasing more than bankruptcies. From October 2017 to 2018, bankruptcy filings increased a mere 1.8%, whereas consumer proposal filings increased 15.8%. And from just September to October 2018 alone, consumer proposal filings surged 18.6%, and bankruptcies rose 13.5%.
Zooming out and looking at the year-over-year numbers on a provincial basis, the report revealed that consumer insolvencies increased in every province except Newfoundland and the three northern territories. Prince Edward Island saw a 20.8% annual jump in insolvencies, while British Columbia saw a 20% increase; Saskatchewan saw a 16% increase and Quebec saw a 9.8% rise.
The increase in insolvencies filed comes amid recent rate increases by the Bank of Canada that continue to put financial pressure on Canadian households. The Bank of Canada raised its overnight interest rate to 1.75% in October — the third hike of 2018.
In its December rate announcement, the Bank of Canada said it would maintain its interest rate for the remainder of the year, citing concern over the collapse in Canadian oil prices, a growing trade war and a slowing global economy. Its next announcement is expected on Jan. 9, 2019.