As the economy seems to be creeping out of recession, the levels of personal insolvency continue to rise. And yet, younger Canadians more at risk from debt than ever. The recent statistics released by Industry Canada through the Office of the Superintended of Bankruptcy indicate that the rate of individual debtors filing for personal insolvency help with a Trustee in Bankruptcy rose to the highest level in Canadian history in 2009.
The term “personal insolvency” refers not only to personal bankruptcies but also to filing of a Consumer Proposal, which is an option for debtors allowing them to avoid declaring bankruptcy by offering to pay just a portion of their debts based on their individual abilities.
Filing for personal bankruptcy represents the most common choice for debtors facing a personal insolvency crisis, however, the percentage increase in the number of Consumer Proposals filed, has outstripped the increasing rates in personal bankruptcies. As reported by Industry Canada, in 2009 the filings of Consumer Proposals were up 38.5% over 2008 numbers, while the 2009 personal bankruptcy levels rose 28%. What is curious about the most recent statistics is that the number of business bankruptcies was down by 12% in 2009 as compared to 2008 levels. To illustrate the point even further, in the years 1990 to 2008 business bankruptcies declined 47%, while consumer bankruptcies, in the same period increased a whopping 112%.
The statistics appear to point out a generally held view that businesses have adapted their operations over the last decade, which has led successful companies to respond to the most recent recession by quickly adjusting their expenses allowing them to survive in hard times. Based on the increasing unemployment rates, it appears part of these quick changes, if not the lion’s share, were born by the employees. The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) recently warned that younger Canadians are at greater risk for rising debt levels and increased unemployment rates. Even before the recession, polling data showed that one-third of Canadians were concerned about managing their debt load. This burden is especially heavy for Canadian under 35 years of age who are continually tempted by an environment of extremely low interest rates. This group has taken on unprecedented levels of credit card debt, often piled on top of huge student loans, car loans and mortgages.
Now, with companies shedding workers, it is often the younger employees the ones that have been most recently hired or with the least amount of overall experience who are the first to be laid off. This compounds their vulnerability. This generation of consumers has embraced and used debt in a way that no generation has before said a CAIRP past chair Alan Spergel. In contrast to the postwar generation, which was wary of debt, today’s young adults treat credit cards as a shortcut to the lifestyle they aspire to enjoy. But when the good times turn bad, the reckoning comes.
Globally, personal debt levels for all Canadians has been steadily increasing, however, in an attempt to target untapped markets, in the early 1990’s credit card issuers began to market aggressively to non-traditional target groups, including university students. Meanwhile, rising tuition costs have forced those same students to rely much more heavily on loans to pay for their education. Industry Canada’s statistics also points out that twenty-five years ago, indebted students represented only one percent of all personal bankruptcies, now, they account for over 25 percent.
Last summer’s amendments to the Bankruptcy and Insolvency Act have resulted in a slight improvement for those struggling with unbearable student loans, allowing these debts to be discharged in a bankruptcy after 7 years compared to the 10 year wait that was required prior to the amendments.
From my experience as working as a Chartered Insolvency and Restructuring Professional, the reality is hard on students who, after working diligently for years on their education of choice, leap into the working world expecting to make some real money. They can be shocked to realize that they are saddled by debt at the worst time in their working careers while working at an entry level position with entry level pay, even if they are lucky enough to find employment in their chosen field. Those that manage to get through their education without excessive debt levels, by either going to school after working for a few years and using their savings, or attending part-time and continuing to work while going to school, are so much better off when graduation comes.
See Also: Personal Bankruptcy