Insolvency Rate Linked To Plunging Oil Prices

MNP's TAKE: As  unemployment continues to increase across the prairies due to a sharp decline in the price of oil, many have found themselves relying on credit to pay for day-to-day expenses as severance pay begins to dwindle and unemployment insurance runs its course. While credit can be a viable solution for handling short-term financial obligations, it can quickly become a costly expense. If you are unable to pay off your credit from one month to the next, it's all to easy to end up in an endless cycle of debt payments to the point where it becomes unmanageable.  According to theOffice of the Superintendent of Bankruptcy, the numbers are in and unsurprisingly, the largest increase in insolvency filings across the country, are in the areas which have been hardest hit by the significant drop in oil prices. The total filings in Canada for the 12 months ended March 31, 2016, were up only 2.8%. When we get province specific however, the numbers vary wildly. In Alberta for instance, insolvencies are are up 27% and Saskatchewan isn't all that far behind with insolvencies up 20%.  These significant jumps show the extent to which many are struggling to stay on top of debt and financial obligations. With that being said, there is some good news: you have options. Depending on your level of household income, you may have several options available to get you on track towards building a stable future and a fresh financial start. Contact Grant Bazian, CIRP, President of MNP Ltd. at 778.374.2108 or [email protected] for information on what debt solutions are available to help you. BY MADHAVI ACHARYA-TOM YEW FROM THE TORONTO STAR The insolvency rate in Canada is slowly beginning to creep upward in parts of the country as the fallout of lower oil prices hits the economy, a new report from CIBC World Markets Inc. shows. The number of insolvencies rose by 1.2 per cent during the six months ending February 2015, the first increase since the 2008 recession, Benjamin Tal, deputy chief economist of CIBC World Markets Inc., wrote in the report published Tuesday. An insolvency filing is the first step to either filing for bankruptcy or making a consumer proposal, where the debtor negotiates with creditors to pay back a portion of what is owed. The number of personal bankruptcies fell by 4.7 per cent during the six-month period, according to the data from the Office of the Superintendent of Bankruptcy. But the number of consumer proposals shot up by 9 per cent. "The damage from lower oil prices is starting to show," Tal wrote in the report. The total number of insolvencies in Manitoba and Saskatchewan rose by almost 11 per cent during the six-month period, while in Alberta it rose by 6.5 per cent - the worst showing since the recession, Tal wrote. "At the same time, the number of insolvencies in Ontario fell by almost 7 per cent, while in British Columbia they were little changed," the report said. It's important to keep in mind that overall, the insolvency rate in Canada is very low, Tal said in an interview. "We are talking about a very low base. The numbers are not in the sky by any stretch. Given the amount of debt people have, it's actually surprising how low bankruptcies and delinquencies are," Tal said. "B ut we are looking at the trend and seeing that there is an increase despite the fact that interest rates are still very low." During the recession, approximately six in 1,000 adults filed for insolvency. That rate has since fallen back to four in 1,000. Delinquency rates continue to decline for credit cards, but are rising on lines of credit. The figures from the Office of the Superintendent of Bankruptcy show that only one-third of insolvent debtors are unemployed. "Other factors, such as employment quality, play an important role here," Tal wrote. More than 60 per cent of insolvents are classified as being in unskilled or semi-skilled jobs. Another 20 per cent say they operated a business within five years of becoming insolvent. "More than half of insolvencies occur due to the combination of overextension of credit, financial mismanagement and unexpected expenses," Tal wrote. With prices for crude oil trading at about half of last year's peak, the Bank of Canada, economists and other observers are watching very carefully for signs of strain in the economy. Household debt levels, in particular, are a source of concern. On average, Canadian households owe just over $1.63 for every dollar of disposable income. The unemployment rate held steady at 6.8 per cent in April for the third month in a row. But there are worries that the lower Canadian dollar is not yet giving the country's manufacturing and export sector enough of a boost to compensate for lost jobs in the oilsands. This article was written by Madhavi Acharya-Tom Yew fromThe Toronto Star and was legally licensed through the NewsCred publisher network.​ ​