Dealing With Increasing Insolvency Rates
The following article by Robert Powell, CPA, CA, CIRP, LIT, President of Powell Associates Ltd, was published in the March 2016 edition of the District News.
I’m a Licensed Insolvency Trustee (a.k.a. bankruptcy trustee) and I love my job. People often think of me of some sort of financial grim reaper seizing assets and shuttering businesses – that’s a bad rap. I spend most of my time helping individuals and businesses extract themselves from the stress and burden of unmanageable debts so they can start over; the so-called “fresh start”.
Debtor’s prison is long gone. The Federal Government has developed procedures for individuals and businesses to reduce or eliminate debts through bankruptcy or restructuring (called a proposal) and these procedures are administered by a Licensed Insolvency Trustee under the provisions of the Bankruptcy and Insolvency Act.
Personal insolvency has become more and more commonplace over the last 30 years. In 1987, the rate of personal insolvency filings in Canada was 1.3 people for every 1,000 of the population over the age of 18. For New Brunswick, the rate was 0.4/1,000 and for the Saint John area was 0.7/1,000. Roll-forward 27 years to 2014 (last year of published annual rates) and the rates were 4.2/1,000 for Canada, 7.2/1,000 for New Brunswick and 7.5/1,000 for the Saint John area. The rates for New Brunswick and Saint John have increased more than 10-fold.
I don’t want your eyes to glaze over but think about this – at the 2014 insolvency filing rate for Saint John, 7.5 people per 1,000 of the population (over the age of 18) either filed for bankruptcy or filed a consumer proposal. If those rates continue, 375 out of 1,000 people now aged 18 will have filed for bankruptcy or a consumer proposal in the next 50 years to age 68. That’s 37.5% of that peer group. The rate is a bit high because some people will actually file 2 or more times, but, it is still a staggering statistic.
Why are the insolvency rates so high? There are lots of factors but, I think the greatest single contributor is the proliferation of easy credit combined with low levels of financial literacy. Debt is leverage; it can enhance rewards (financial and personal gratification) but also creates increased risk. High debt levels limit financial flexibility and the ability to weather and recover from financial setbacks resulting from job loss, reduced income, illness, separation/divorce, and other life events.
Canada, New Brunswick, and Saint John are facing some significant economic challenges. This translates into financial stress for their individual and business citizens. Some will weather the storm better than others. Some will have to use my services to retrench so they can move forward again.
Powell Associates Ltd. is a Licensed Insolvency Trustee (LIT) focused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses. We offer free consultations to review your personal financial situation and practical debt resolution options. Contact us to discuss your situation over the phone or book an appointment to meet us face-to-face in Saint John, Moncton, Fredericton, Charlottetown or Dartmouth - it's your choice.