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2015 Insolvencies Reflect Provincial Economies

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The Office of the Superintendent of Bankruptcy just released their 2015 Annual Report of bankruptcies and consumer proposals in Canada and from these numbers we can see the impact shifts in the Canadian economy have on indebted Canadians.

In 2015, 121,609 Canadians filed for insolvency, an increase of three per cent over the prior year. The number of insolvencies in provinces with oil-based economies, such as Alberta, Newfoundland and Labrador, and Saskatchewan were significantly higher than they were last year.

Meanwhile, neighbouring provinces such as Quebec, Prince Edward Island, and Manitoba also felt the sting of low oil prices as laid-off energy sector employees returned home, increasing the rate of insolvencies in those provinces as well.

In contrast, Ontario was the only province that saw a decrease in the number of insolvencies -- supported by stronger employment due to the low Canadian dollar and an increase in exports.

While personal bankruptcies in Canada were down 2.2 per cent, consumer proposals were up 9.4 per cent and increased in every province across Canada. Consumer proposals accounted for 47.9 per cent of all insolvencies meaning that for every bankruptcy filed in Canada, someone else files a consumer proposal.

These numbers should serve as a wake up call for anyone carrying consumer debt.

The increasing trend towards consumer proposals can partially be attributed to higher real estate prices. Heavily indebted consumers can utilize the equity in their home to negotiate a settlement arrangement with their creditors, keep their home and other assets, all while avoiding bankruptcy.

In addition to their Annual Report, the Office of the Superintendent of Bankruptcy also released the most recent monthly report that revealed the number of insolvencies in Canada was up 11 per cent in February from January and increased another 1.5 per cent from a year ago.

These numbers should serve as a wake up call for anyone carrying consumer debt. Debt can catch up with you even in the best of economies. It can slowly creep up on you until the debt becomes so large, the minimum payments are unmanageable. Your debt repayment plan can get sidelined by not only a change in employment but other unexpected life events such as an illness or divorce. Carrying debt today means you do not have any financial 'wiggle room' to weather any rough patches like a downturn in the economy.

However, there are steps you can take to survive an economic crisis. My advice to anyone living in a province with a 'booming' economy is to be cautious with your finances. Pay off any outstanding debts and do not take on more debt. Do not assume that just because your provincial economy is doing well, you do not have to prepare for the future. Do not assume the 'good times' will last. As we can see in Alberta, things can and will change quickly.

Learn to live without debt. Figure out how to balance your budget. Set aside an emergency fund as contingency for unexpected expenses or income loss. Give yourself the financial breathing room to handle the possibility that you may lose your job without having to turn to credit.

Remember, a "booming" economy is the time to repay debts quickly, not put them off. That way, if -- or rather when -- the economy shifts in your province, it won't be such a shock to your finances.

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