canada bankruptcy rates

Consumer Bankruptcies in Canada - A Short History

In Canada, from 1958 to 1971, the consumer bankruptcy rate was at a fairly constant level, and, for a modern industrialized country, the bankruptcy rate was at a very low level. For example, in 1968, Canada had six (6) bankruptcies per 100,000 population. The United States, in 1968, had ninety (90) bankruptcies per 100,000 population.

A special joint committee of the Senate and House of Commons on consumer credit, under the joint chairmanship of Senator David A. Croll and Ron Basford, MP, had finished hearing briefs and had tabled its report in 1967. In 1970, the Tasse report on bankruptcy and insolvency was presented, and, in 1971, a special Senate committee on poverty, under the chairmanship of Senator David A. Croll, was hearing about the problems of low income individuals from coast to coast. For the first time, members of those committees heard of the human tragedy of people and families trapped in impossible debt situations with no relief available. In 1972, in response to recommendations in each of these reports, the Federal Government started the Poor Debtors' Assistance Program. In the period from 1972 to 1981, the bankruptcy rate rose steeply.

In 1982, the consumer bankruptcy rate jumped dramatically from 23,000 in 1981 to more than 30,000. This 33% increase over the previous year was caused by the severe worldwide recession. From 1983 to 1985, the bankruptcy rate in Canada fell in response to the strengthening economy. Since 1985, the consumer bankruptcy rate has risen steeply, hitting record numbers in 1997 and then declining slightly in 1998.

In 2004, the consumer bankruptcy rate in Canada was 2.7 per 1,000 population. This compares with the U.S. bankruptcy rate for the same period of 7.7 per 1,000 population. British Columbia has the lowest consumer bankruptcy rate of any region in Canada at 2.0 bankruptcies per 1,000 population.

(image from last post too)

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http://edmontonhousingbust.com/files/100610-1.jpg (image)

http://edmontonhousingbust.com/2010/06/

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http://www.bankruptcycanada.com/StudentLnIntbyCountry.gif

D - maybe you thought times were tough all around? Y'know, global recessions and all. Sure. But our interest rate for student loans compared to other nations is OUT OF SIGHT!

This, along with a few other gov't policy shifts, ensures the 1st half of my working lifetime would be a wasteland.
When I got out of U, I was paying nearly 10% on one of my loans. An entry level job (at the min. wage of the time) could not touch the principal.

D - so let's look at those time limit bankruptcy changes for student loans.

July 7, 2008 New Student Loan Bankruptcy Laws go into effect.

Student loan debt will be eligible for discharge in bankruptcy if seven years have passed since the former student ceased to be a full or part time student.

http://www.bankruptcycanada.com/studentloans1.htm

June 30, 2005 - Justice Gordon Sedgwick of Ontario Superior Court ruled today that student loan debtors don't constitute a specific group that should be protected from discrimination under the Charter of Rights and Freedoms.

This means that the law stating that student loan debt cannot be erased in a bankruptcy until the student has been out of school for 10 or more years remains law.

This law was rushed through parilament and made law in June of 1998. The law is seen by almost all insolvency professionals as unfair and discrimnatory because students are the only group that cannot wipe out their debt in a bankruptcy in the time afforded all other dischargable debt.

http://en.wikipedia.org/wiki/Student_loans_in_Canada#History

The CSLP was created in 1964. Since its inception, the Program has supplemented the financial resources available to eligible students from other sources to assist in their pursuit of post-secondary education. Between 1964 and 1995 , loans were provided by financial institutions to post-secondary students who were approved to receive financial assistance

D - once again, cuz the Boomers are entitled. Universally. Period.

Students have the choice of opting for a fixed interest rate of prime interest rate + 5%, or a floating interest rate of prime interest rate + 2.5%. Newfoundland and Labrador is the only province where there is no interest on the provincial loan.

D - yup they're trying to make money here. Unlike other nations.

http://student-loan-bankruptcy.ca/

D - good site with hard technical data on 'how-to' student bankrtupcies.

http://publications.gc.ca/collections/Collection-R/LoPBdP/BP/prb0126-e.htm

In 1992, major changes to Canadian bankruptcy law took effect; one of these changes abolished preferred creditor status for debts owed to the government. This change relegated the Crown to the ranks of ordinary creditors who would share pro-rata in the bankrupt debtor’s assets after secured creditors and preferred creditors. Consequently, the Crown had no priority over other creditors for student loan debts.

Amendments to the Bankruptcy and Insolvency Act (BIA) that took effect in September 1997 changed the status of student loan debts by making them non-dischargeable if a student filed for bankruptcy before ceasing full- or part-time studies or within two years after studies ended.

D - And (checking chart) yup, the 92 and 98 changes both led to temporary delays in student bankruptcies. For 2 and 10 years respectively the #s march in lock-step to my prediction.
And then. Marches up again. Cuz nothing else had changed.

http://www.parl.gc.ca/Content/LOP/ResearchPublications/prb0126-e.htm#studentbankruptcy

Student Loan Debt and Bankruptcy Levels

Statistics Canada data confirm that the number of bankruptcies involving loans under the Canada Student Loans Program rose during the 1990s. Data on student debt from 1990-1991 to 1995-1996 also reveal:

in the 1990s, the level of student loan debt increased;
more students encountered problems repaying their loans shortly after leaving school – in 1995-1996, 30.9% of students had difficulty repaying their loans in the first year after leaving school compared to 21.7% in 1990-1991...
after accounting for graduates who had no loans and those who paid off their loans entirely, loan repayment problems were reported for 10% to 15% of the 1995 graduates.(9)
Other studies also shed light on the student bankruptcy issue. An Empirical Study of Canadians Seeking Personal Bankruptcy Protection (1998) by Saul Schwartz and Leigh Anderson confirms the importance of student loans as a factor in the bankruptcy of younger Canadians. Schwartz and Anderson report:

For young people seeking bankruptcy, student loans were very likely to comprise a large share of overall debt. For 28% of the young people, student loans were 50% or more of the overall debt and, for 10%, student loans were more than 90% of total debt...
In a 1999 paper, Saul Schwartz notes that approximately 9% of Canada student loan borrowers had defaulted on their loan obligations in 1980, but by 1990, the Auditor General of Canada had put the default rate at “one in six.”(11) As the number of student bankruptcies rose, so did the cost to government. In 1996-1997, for example, student loans in bankruptcy reportedly cost the federal government $70 million, up from $30 million in 1990-1991.(12)

Using data pertaining to more than 1,000 debtors who filed for bankruptcy in 1997, Schwartz examined the situation of bankrupt individuals with student loan debts. Comparing the economic status of those individuals with the overall sample, Schwartz concluded:

Schwartz summarized his findings this way:

The economic situation of all those declaring bankruptcy suggests that bankruptcy is used primarily as a last resort. The economic situation of those seeking bankruptcy protection with student loans among their debts, or whose student loans were critical in their bankruptcy, is even worse than the already desperate situation of the whole group. To be sure, they are younger and have more education, but they have lower annual household income and lower monthly income at the time of filing for bankruptcy. More than 40% had received income assistance in the two years previous to filing, and about 30% had received unemployment insurance. A surprisingly large proportion – more than one-third – had occupations that were unskilled.(17)

This conclusion was echoed in a report funded by the Office of the Superintendent of Bankruptcy in 2005, which examined the treatment of government-funded student loans in bankruptcy, both in Canada and in four other countries. This report noted that while the main motivation for the policy of requiring student loans to survive bankruptcy in all of these countries was a perception that students were using bankruptcy casually to avoid repaying their loans, the factual record to support this perception was thin to non-existent.

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D - the simple explanation is that Boomers, once working, backed gov't solutions that reduced subsidies to post-secondary institution operating budgets. Then they stripped away student grants. Then they faced a student bankruptcy scenario of their making.

D - the new '7 year rule' was a wishy-washy compromise between the widely criticised '10 year rule' and a '5 year' counter proposal.

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http://thesheaf.com/wp-content/uploads/2010/09/sept8studentloansPIC_original.jpg (image)
D - my god, misleading chart. Angling a 2D chart to distort it? Really?!

D - next stop: to prove that Boomer grad DID do exactly that - bankrupted on negligible loans simply because there was no reason not to. That info will taking digging.
Keep in mind that such a bankruptcy did not show up on their credit report. I have things to do now. TTYL.