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CANADA INSOLVENCIES EXPECTED TO JUMP SAYS EVERY AUTHORITATIVE PUNDIT AND INSOLVENCY INSIDER

canada insolvencies
canada insolvencies

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of the Canada insolvencies Brandon blog, please scroll to the bottom and click play on the podcast

Canada insolvencies introduction

Ideally, if the debt was free as well as limitless, most of us would certainly be able to spend for whatever we wanted with a couple of swipes on our credit card. Companies would be able to buy supplies and also pay salaries simply by borrowing a lot more from their lender. There would be no Canada insolvencies and I guess I would be out of work!

But when the credit crisis struck at the start of this century, it revealed simply how much complimentary and limitless credit there really was, and also the number of people who had been living beyond their means with massive huge debt loads for years.

In 2020, the coronavirus pandemic struck the globe. Every country’s health system has been exhausted to the max. Governments initiated widespread lockdowns and strove to maintain their respective economies afloat. Canadian workers lost their jobs or otherwise having their income considerably decreased because of stringent lockdown measures. This required the federal government to bring in several assistance programs for individuals as well as businesses under the banner of Canada’s COVID-19 Economic Response Plan. Household support measures were imperative.

Every pundit, economist and insolvency insider forecast that Canada insolvencies would jump in 2020. They didn’t. I discuss why and what it means.

What Canada insolvencies mean

As I have written many times in the past, the word insolvency refers to a financial condition in which a person or business is not able to pay its financial obligations. The sensation of being in debt can be an extremely frustrating scenario. The thought of being not able to settle your debts is impending darkness that can seem impossible to get rid of.

As I have promoted many times in my blogs about Canadian households and family budgets, your charge card must continue to be securely in your pocket most of the time. You only should utilize it to acquire things you’ve budgeted for. Nonetheless, if you find yourself not able to pay your credit card bill, you might run the risk of dealing with a scenario known as insolvency. If you have a large amount of debt or restricted earnings, the concern of insolvency needs to be a large motivator for you to do something about it. It causes strains in households.

Limited, lowered or no revenue, whether you are an individual or a company, has actually been the result for lots of Canadians due to the coronavirus pandemic. The provinces, including Ontario, implementing lockdowns of differing degrees has also been a cause. The federal government had no choice but to generate its economic response plan to make aid payments to individuals and companies. Pundits had actually been anticipating a rise in insolvency volumes since the 2nd quarter of 2020.

Global insolvency insider forecasts said there would be a rise in Canada insolvencies and elsewhere in 2020

Insolvencies in the UK were anticipated to leap to record levels by 27% in 2020. That was exposed in a financial study called the Atradius Insolvency Report. Atradius is a leading trade credit insurance firm. It also forecasted that every major economy in all countries, except for China, was anticipated to enter an economic downturn in 2020 with international GDP forecast to contract by 4.5%. This would make it a much more intense recession in magnitude than the Great Recession of 2009. Naturally, COVID-19 was the reason.

Euler Hermes, a trade insurance firm, reported that it predicted that governments around the globe are clambering to save companies battered by coronavirus lockdowns. They said the world is nonetheless encountering a huge rise in insolvencies by one-third in 2020 and also 2021.

In Canada, increased food prices, loss of income and a cost of living have many individuals struggling monetarily. Credit card debt is surging and that is what might push numerous people over the edge. Statistics Canada just released a preliminary estimate that 2020 GDP reduced by 5.1% over year-earlier levels which is the worst year in over 6 decades. The federal government will certainly be presenting a new budget to try to kickstart Canada into an economic recovery. Predictions for later in 2020 also had Canada insolvencies rising.

What really happened in 2020 Canada insolvencies

Nonetheless, as 2020 finished, Canada insolvencies including personal bankruptcies went to a 24-year low. The 2020 trend in insolvencies was a continuing descending pattern. There’s been no spike in personal and business bankruptcies notwithstanding lots of financial difficulty in our country. There was no surge in Canada insolvencies. The opposite was true.

I have previously written on the decrease in Canada insolvencies. In my view, the main factors for the record low Canadian personal insolvencies and corporate insolvencies, including bankruptcy filings in 2020 were:

  • federal and provincial government support measures including the Canada Emergency Response Benefit (CERB), Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Business Account (CEBA), which had an increase from $40,000 to $60,000
  • mortgage debt payment deferrals
  • the courts having been closed for many months so nobody could get sued

So the predictions for 2020 regarding the level of insolvencies did not come true as there was a continuing decline in insolvencies. So now, each economist and all the pundits have just kicked their signs of increases in insolvencies predictions down the road and claim that 2021 will be the year for the big jump in corporate and Canadian consumer insolvencies. The main reason cited for these 2021 insolvency forecasts is that as far as we know now, the COVID-19 relief programs will wind down. Canada, like most other nations, is not expected to return to a pre-pandemic level for some time.

canada insolvencies
canada insolvencies

How do you prove insolvency?

Canada’s insolvency laws are fairly straightforward. The two main options for an individual who cannot pay all their debts are also straightforward under the Bankruptcy and Insolvency Act (Canada) (BIA). You either file for an individual consumer proposal or personal bankruptcy.

For insolvent corporations, there are options for them under the BIA too. They can restructure and reduce their debts through a Division I Proposal. Alternatively, a company can file for bankruptcy. For companies with debts greater than $5 million, they could choose to restructure by filing under the Companies’ Creditors Arrangement Act (CCAA).

I have also written before about the tests for Canada insolvencies. They are:

  • the debtor has stopped paying debts as they generally become due
  • your liabilities are greater than your assets
  • if you liquidated all of your assets, there would not be enough money to pay off all your debts in full

Canada insolvencies: What happens during insolvency?

When a person or company finds themselves not able to pay their costs, they are insolvent. Insolvency is an economic problem. This typically indicates that they cannot pay their present expenses in a prompt way. There are a number of choices for dealing with your debt when you go into insolvency. What you need is the insolvency advice of a licensed insolvency trustee (Trustee). The Trustee will certainly examine your scenario, establish your insolvency level and discuss your sensible alternatives with you.

As an individual, you can try to use the proposal provisions of the BIA to keep your assets, while you negotiate with your creditors with the help of the Trustee. The objective is to come up with a plan to pay a portion of what you owe to eliminate all of your financial obligations. This allows you to attempt to reorganize your business or personal situation to avoid bankruptcy. It is important to understand your choices.

Lots of people are afraid of declaring bankruptcy or perhaps even owing money. Not many individuals understand what happens throughout insolvency. People assume bankruptcy is a quick fix to all of their financial problems. They think they will never ever need to fret about cash ever again. They are wrong. When you file for bankruptcy, you have simply taken a massive step in the direction of economic liberty.

Nonetheless, there are duties and responsibilities on the person that declares bankruptcy. The process is developed to work with you using counselling to ensure, as best as feasible, that your financial troubles will no longer rule your life. The ultimate objective is that when you have actually successfully completed your debt settlement proposal or have your bankruptcy discharge, you will not once more be tempted to have additional debt that is going to drag you back into insolvency.

It is very important to remember that just because you owe money does not imply that you ought to give up. Rather it suggests that you require to find among the realistic options that a Trustee can help you with to work you out of financial trouble.

Canada insolvencies: What happens when you file insolvency?

At some point in life, you may find yourself in an economic scenario that you do not recognize exactly how to get yourself out of. You’ll be stuck in a situation where you owe more money than you can ever pay back. Remember that insolvency is a financial situation. You can become insolvent, but you cannot file insolvency.

What you can do is search for an option to settle your financial debts, leave them behind as well as move forward with confidence and no tension in your life. It is not your fault that you cannot do it yourself. You have only been taught the old ways. A Trustee can help you using new ways. That is what we are trained to do.

The options, in order of seriousness and urgency, within the Canadian insolvency framework are:

  1. Devise a realistic family household budget to see where you can divert the money you are currently spending away from certain items to unpaid debt until it is all paid off. Household finances must be studied to make sure that there is a balanced budget.
  2. Reaching an informal arrangement with your few creditors to get deferrals from creditors and/or pay them less than the total amount owing on each in order for them to write off the balance.
  3. Reaching a formal debt settlement plan through a Trustee in order to extend the time you have on an interest-free basis and agreements with creditors that you will pay less than the total owing in order to wipe away all of your unsecured debt. This process is called either a consumer proposal or a Division I Proposal, depending on whether you owe more or less than $250,000. To read more about consumer proposals, please click to read my consumer proposal faq blog.
  4. Filing for bankruptcy in order to eliminate your debt and start again fresh, Starting Over, Starting Now.

This is what the BIA is designed for. For corporations owing less than $5 million, they too can take advantage of either debt settlement or bankruptcy using the BIA. If a corporation owes more than $5 million, they can also consider a debt settlement plan under the Companies’ Creditors Arrangement Act (CCAA).

You can deal with your own form of insolvency through the BIA if you can’t pay your bills and you can’t find a way to get out of your situation. You can do one of the consumer insolvency filings available to avoid being harassed by debt collectors. Consumer filings are available to individuals to get a fresh start. Your car breaks down and you can’t afford to fix it. Your debt through mortgages payments are too high. You can’t pay your rent. Why would you not want a no-cost consultation with a Trustee? You literally have nothing to lose.

Canada insolvencies summary

I hope you enjoyed this Canada insolvencies Brandon Blog post. Will there be an increase in insolvencies around the globe in 2021? What will the insolvency figures end up being? I don’t know. But rather than worrying about the whole world, what about you?

If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, Contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this Covid-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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Brandon Blog Post

TWO INCOME TRAP OF SEN. WARREN

two income trap

If you would rather listen to the two income trap blog audio file, please scroll down to the end for the podcast.

Two income trap: Introduction

In the last 50 years, women have entered the labour force in real numbers. This did not result in families having a much easier time of it economically. A great number of people thought it would because a family now had two full-time income earners. Financial troubles might if anything be much more extensive among two income households today. This is called a two income trap.

Two income trap: Senator Elizabeth Warren

I recently read an article on the United States Senator Elizabeth Warren. I had not been actually familiar with her history prior to reviewing the write-up. Turns out that she was a lawyer who focussed on bankruptcy legislation. She was a professor at the Harvard Law School.

Senator Warren’s daughter, Amelia Warren Tyagi, is an entrepreneur and management consultant. They co-authored a book “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke“. It was first released in 2003 and an updated version was released in 2016. The book is a sociological review of exactly how American households and life have developed from the 1960s to contemporary times. Although it is a testimonial of American life, I think the same concepts and conclusions can be related to Canada’s middle class too.

Two income trap: The rise in middle-class insolvencies

One reality that bothered the writers was that by the early 2000s, bankruptcies in the middle class became greater than in any other American socio-economic group. To put it simply, when considering the family members that are declaring bankruptcy, it’s not the extremely poorest or the really wealthiest. It actually has to do with the middle class and the kind of financial difficulties they meet.

The writers wished to attempt to clarify why much more middle-class households, making even more than ever previously, saw a 500% rise in individual bankruptcy filings from the very early 1980s to the very early 2000s. The writers likewise keep in mind that along with personal bankruptcies, home mortgage foreclosures were up greater than 3.5 times than in the very early 1980s. This is prior to the 2008 economic disaster mess!

Two income trap: The financial disintegration of the middle-class household

Their study began with a solitary reality. The possibility that a family with youngsters would wind up in bankruptcy is more than families without children. They uncovered that households that have youngsters in the family are almost 3 times more likely to wind up declaring bankruptcy than households that do not have children.

The writers think it is really vital to comprehend the problems triggering middle-class economic issues. This is due to the fact that they discovered that 2 out of every 3 households that applied for bankruptcy have actually had a real job loss or loss of income prior to their declaring bankruptcy.

Someone’s lost a job; a person’s had a major downturn when it comes to households where both the husband and wife work. Sometimes both of them have actually lost their job before bankruptcy. So we’re actually talking about individuals that are not just way down on the earnings side. They had no financial savings or emergency money fund to draw on when the unanticipated calamity struck. Stating it a different way, households were damaged attempting to have a middle class lifestyle!

This concern fascinated the writers. We can comprehend the young and careless declaring bankruptcy. We can also recognize a tale about seniors in debt that states decreasing health, limited revenue, no potential to make extra in the future and insufficient funds for retired life will certainly have financial issues. Nevertheless, in the case of seniors in debt, the reasons for their financial difficulties probably began a very long time ago. With restricted earnings and no financial savings to draw on, revealed the concerns which already existed.

Two income trap: The newer generation middle class

Insolvency stories about women and men working and raising children are normal today, but this was not so in the very early 1980s and earlier.

In those days, middle-class stories were not about creating debt to purchase consumable or lifestyle items they cannot afford. Stories about the current middle class in financial trouble inevitably show similar primary factors why these family members wind up bankrupt. They are attempting to spend on not only food and clothing but other costs that have become family fixed costs, such as:

Middle-class families need to have 2 automobiles when both mother and father are in the labour force. The spread of suburban life families have out of necessity opted to get more space for the dollar and overall affordability, also demands being a 2 car family. By the time they make all their fixed cost payments, those two income households think about what was supposed to be their financial success tale.

They have much less cash left over than their one-income dads’ or grandfathers’ households had. It appears that as our society modernizes and allows people to do a lot more, the ambitions of middle-class families do not always come to fruition. The middle class has been and continues to shift. The middle-class size has reduced compared to the 1970s. Families have been either moving up or down. On a net basis, the middle class has not been growing.

This actually does not amaze me. When you have children your expenditures jump astronomically. As lately as the very early 1970s, a Canadian household had buying power on one income. It certainly gave a middle-class way of living. What took place in the 1960s and 1970s, is one income sufficed to sustain a household in what was a typical and comfortable middle-class life.

It absolutely was middle class; it was right in the centre. You may have needed to clip coupons to save money, yet you were buying your food at grocery stores, not going to a food bank. Your home could have been small, yet it was your own and you had the want and ability to hive off savings from your regular employment income to pay off your only mortgage quicker.

Two income trap: So what has changed?

That generation recognized exactly how to stick to a spending plan. They were more successful than their parents’ generation. They learned lessons from their parents about: (i) money; (ii) budgeting; (iii) saving for an objective; and (iv) understanding and being OK with if you cannot pay cash now for something, you simply do not buy it.

Now with both parents in the labour force, expenditures for dining in a restaurant more often, more expensive clothing, gas for the two cars are instances of regular expenditures the modern family has. One or two generations ago families did not have the same level of those kinds of expenses. Modern families spend a lot more than simply for what was the core fundamentals. We constantly recognize that having children is costly. Yet something has taken place in a single generation. The expense of living for a family with kids has actually made what once was a common middle-class life out of reach for the ordinary typical income earner.

Nowadays, the level of a household’s fixed costs is not how an economist would look at costs as compared to the income level. Rather, it is how people today understand what a two income family’s costs realistically are at the same income level. In modern-day culture, people are dining in restaurants a lot more, have home appliances and communication devices that did not exist 1 or 2 generations earlier. Housing expenses have boosted considerably. This is the brand-new facts of life for the contemporary culture household.

Two income trap: So here is the key to release you from the trap

Canadians have a financial literacy problem. Lots of people assume that some are born rich while others are not. The fact is that in most cases, those that are well off simply have a much more reasonable understanding on costs and how to live within one’s means. They also have willpower. In the past, people thought first if they could actually afford something before they spent their money on it. They don’t just look at the interest rate and monthly payment incurring that new debt will have.

I have written several blog posts alerting Canadians about the need to budget and plan thoroughly to make sure that expenses do not surpass income. A spending plan requires to consist of savings; both for an emergency reserve and for retired life. Those that do not do so are more likely to be in financial trouble when an unforeseen occasion happens. It is because they have absolutely nothing to draw on in lean times.

There are many ways to start early in life to avoid financial disaster. If it sounds familiar, that’s due to the fact that they are. Nonetheless, yet few people value them. That’s partly due to the fact that they weren’t taught in either the home or in the schools.

Financial proficiency, like civics education and learning, requires to be a demand in all primary school, secondary school as well as university curricula.

So the key to being released from this trap is twofold:

  • behaviour modification; and
  • financial literacy being taught at all education levels

Two income trap: Are you caught in the two-income trap?

Are you caught in the two income trap? Worried that future interest rate hikes will make presently affordable debt entirely out of reach? Is the discomfort, stress, and anxiety too much debt brings on negatively affecting your health and wellness?

If so, call the Ira Smith Team today. We have decades and generations of experience helping people and companies needing financial restructuring. As a licensed insolvency trustee, we are the only professionals licensed and supervised by the Federal government to supply financial restructuring services.

Call the Ira Smith Team today to make sure that we can begin aiding you to return right into a healthy and balanced and well-balanced, worry-free life.

We will provide a no-cost consultation to aid you to resolve your money troubles. We understand the pain debts and financial distress triggers. We can end it from your life. This will certainly allow you to begin a clean slate, Starting Over Starting Now.

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BANKRUPTCY STATISTICS CANADA 2018: SCARED OF INSOLVENCIES IN CANADA OR DEBT?

bankruptcy statistics

If you would rather listen to the Bankruptcy statistics Canada 2018 blog audio file, please scroll down to the end for the podcast.

Bankruptcy statistics: Introduction

On January 4, 2019, the Office of the Superintendent of Bankruptcy Canada issued its bankruptcy statistics report “Insolvency Statistics in Canada—November 2018”. Most of the headlines on this report quoted that Canadian insolvencies rose 5.2% in November 2018. While true, that headline alone could create the impression that we now have runaway bankruptcies in Canada. Nothing could be further from the truth. Let me explain.

Bankruptcy statistics: The latest numbers

Total insolvencies in November 2018 was 5.2% higher than total insolvencies in November 2017. That is what the press has quoted. However, that statistic by itself is meaningless. The complete number of insolvency filings (proposals and bankruptcies) in Canada lowered by 2.5% in November 2018 contrasted to the previous month.

For the 12-months ending November 30, 2018, total insolvencies boosted by 2.0% compared with the 12-month period ending November 30, 2017. This is a fairly modest total increase. Keep in mind that insolvencies in Canada have been at historically low levels for the last 9 years! A total annual increase of 2% from a historic low number is hardly an epidemic.

Consumer insolvencies for the 12-months ending November 30, 2018, increased by 2.0% compared to the 12-months ending November 30, 2017. Consumer personal bankruptcies were down by 5.0%, while consumer proposals were up by 8.4%. The percentage of proposals in consumer insolvencies increased to 55.7% during the 12-month period finishing November 30, 2018, up from 52.4% throughout the 12-months ending November 30, 2017. This means that over half of those Canadians who made an insolvency filing in this time period avoided bankruptcy. This is a good thing.

Business insolvencies for the 12-month period ending November 30, 2018, decreased by 0.6% compared to the 12-month period ending November 30, 2017. The industries with the largest decrease in insolvencies were mining and oil and gas. The industries with the largest increase in insolvencies were building and construction and retail.

Bankruptcy statistics: What is the real issue

The real issue is not these statistics. Rather, it is the historic high level of Canadian household debt amassed when interest rates were at near zero percent levels. Now that we are in a gradually increasing interest rate environment for the foreseeable future, not every person or company carrying high debt will be able to continue meeting their obligations and will have to resort to an insolvency proceeding.

I have written about the dangers of carrying too much debt for many years now. We are now entering the period where the rubber meets the road. Stephen Poloz, Governor of the Bank of Canada, feels the Canadian economy is doing sufficiently well to slowly boost rates of interest. Mr. Poloz believes to be tightening up that a bit. At the exact very same time, the latest insolvency statistics show that the marketplace now tells a story that there may be room for some actual pessimism about the Canadian economy.

Previous Bank of Canada Governor Mark Carney and the former Finance Minister, the late Jim Flaherty, warned the Canadian consumer to place the economy on their back and march it up a high hill. We did and it worked. This is now the outcome of it.

Bankruptcy statistics: Canadian household debt

There’s a good deal of conversation on what that suggests specifically for Canadians. It isn’t that the warnings have actually not been there for a while. The most recent statistics show that Canadian household debt is around 170 percent of disposable income. The regular Canadian owes $1.70 for every single buck of revenue made each year, after tax.

Twenty years ago, the proportion was 100%. So as you can see, there has been a stable climb in Canadians’ cravings for more financial debt. We have among the greatest financial obligation percentage of any of the Organisation for Economic Co-operation and Development participant nations. For those carrying high debt, it is now time to buckle your seat belts as interest rates will continue to rise.

There were indications that the Canadian consumer was thinking of their budgeting. Statistics Canada previously reported that retail sales were slowing down. Now in the latest insolvency statistics, we see that retail is one of the industry sectors that had an increase in corporate insolvency filings.

With rates of interest increasing, so does the cost of borrowing and the cost of maintaining variable rate loans. Fixed rate loans that mature will need to be refinanced at higher interest rates if the loan cannot be repaid in full.

Bankruptcy statistics: Debt in a rising interest rate environment

Do you have too much debt? Does your company have too much debt and is in danger of shutting down? Are you concerned that future interest rate hikes will make currently manageable debt totally unmanageable? Are the pain and stress now negatively affecting your health?

If so, contact the Ira Smith Team today. We have decades and generations of helping people and companies in need of financial restructuring and counselling. As a licensed insolvency trustee (formerly known as a bankruptcy trustee), we are the only professionals licensed and supervised by the Federal government to provide debt settlement and financial restructuring services.

We offer a free consultation to help you solve your problems. We understand your pain that debt causes. We can also end it right away from your life. This will allow you to begin a fresh start, Starting Over Starting Now. Call the Ira Smith Team today so that we can begin helping you and get you back into a healthy, stress-free life.

Call a Trustee Now!