Canada's Housing Bubble

Mar 03, 2009 money.canoe.ca

Personal bankruptcies and proposals hit a record high in Canada in 2009 as incomes fell and debt rose, government figures showed, creating a “ticking time bomb” for the economy.

Combined personal and business insolvencies (actual bankruptcies and proposals) jumped 29%, with individuals accounting for the bulk of the total, the Office of the Superintendent of Bankruptcy Canada said on Wednesday.

"Household debt in Canada is a ticking time bomb," Douglas Hoyes, a bankruptcy trustee with Hoyes, Michalos & Associates Inc., said in a statement responding to the numbers.

"Canadians with jobs have managed to service their high debt levels thanks to low interest rates, but that period of relative peace will end the moment interest rates start to rise later this year," Hoyes said.

The Bank of Canada highlighted household debt as one of the biggest obstacles facing economic recovery. And Finance Minister Jim Flaherty recently made changes to mortgage rules to protect homeowners from taking on more debt than they can handle.

Personal insolvencies spiked 31% for the 12-month period ending Dec. 31 while business bankruptcies actually dropped 9.6%.

A record number of Canadians, 151,712 to be exact, filed either a personal bankruptcy or proposal in 2009.

The Office defines a consumer as an individual with more than 50% of total liabilities related to consumer goods and services.

Canada’s agriculture, forestry, fishing, and hunting, construction, and transportation and warehousing sectors all showed signs of improvement.

The consumer debt-to-income ratio has peaked in this country with the average Canadian accumulating $141 in debt for every $100 they earn, the firm said.

The Northwest Territories and Alberta saw the biggest jumps in total insolvencies last year with 80.8% and 58.8% respectively. Nova Scotia and Nunavut saw the lowest rises with 15.5% and 11.1% increases each.

New federal bankruptcy rules which came into effect last September increased the cost of filing for bankruptcy and was partially responsible for the significant number of Canadians filing consumer proposals to deal with debt, the firm said.