British Columbians are heading toward bankruptcy in increasing numbers, and easy access to credit suggests that trend is likely to continue.
The number of B.C. consumers filing for bankruptcy or making repayment proposals to creditors has risen by 8.3 per cent in the last year, from 948 in February 2015 to 1,027 in February 2016, according to the Office of the Superintendent of Bankruptcy.
That mirrors a Canada-wide trend. The country as a whole has seen a 9.7-per-cent jump in consumer insolvencies, led by Alberta, where the number rose by an astounding 47.4 per cent in the last year.
Judy Scott, a trustee with MNP Debt in Surrey, said that she expects to see a gradual increase in insolvencies in coming years if interest rates stay low. Once rates go up, there could be a dramatic spike.
“If you look to the debt-to-income ratio, it’s currently at a record level. That’s an indication of the availability of consumer credit and the willingness of people to use it,” Scott said.
Credit card debt is playing a big role in the insolvency cases that come into Scott’s office, but she also sees a fair number of people defaulting on student debt payments, vehicle financing and lines of credit.
“We see a lot of people who are using credit to cover their rent and food and other living expenses. That’s typically a big warning sign,” Scott said.
And even with extremely low interest rates, some homeowners are taking on too much mortgage debt or refinancing to pay for other big purchases.
The online records for B.C. Supreme Court are littered with the stories of recent bankrupts.
They include people like Daniel Annand, a handyman who filed for bankruptcy in 2013 after taking on more than $200,000 in tax debt while helping a relative recover from a drug addiction and stave off foreclosure on her home.
Some have gone down the insolvency road before. Kipling Keylock was assigned into bankruptcy for a second time in 2012 after a series of failed real estate projects in the Comox Valley and an audit from the Canada Revenue Agency that found he had failed to report nearly $1 million in income.
A recent trend, however, is for people with heavy debt loads to offer proposals to their creditors for settling their debts rather than filing for bankruptcy.
“It shows … a desire to address the debt in a way that is fair to the parties and is manageable for them,” Scott said.
But she cautioned that the proposal route might not be right for everyone, and said getting professional advice is key for anyone whose financial situation is heading toward dangerous territory.
Scott’s key piece of advice for people carrying big debt loads is simple: Write out all your monthly living expenses as well as your minimum debt payments.
“Doing a budget is a really good idea. That might sound a little trite, but it really is, because it shows people how much they’re spending,” she said.
“A lot of people just don’t psychologically face that. When you write it down, it really makes an impression.”
And she has a rule of thumb for figuring out if you’re really in trouble: “Look at what it would take to pay off your debt over a period of 36 months. If you can manage that level of payment, you’ve got a reasonably good shot at paying it off on your own. If that payment looks a bit intimidating for you, you need to get some advice.”