Consumers in Cape Breton are three-quarters more likely than the average Canadian to declare insolvency, according to statistics from the Office of the Superintendent of Bankrupcty. Insolvency rates in the Annapolis Valley and along the North Shore are also very high. Halifax shows the lowest rates provincially, but is still above the Canadian average.
Across the province nearly seven out of every thousand Nova Scotians declared bankruptcy, or made a consumer proposal (an agreement with creditors to repay a lower amount, or repay over a longer time-frame) in 2010 – the highest rate in Canada and one-third higher than the national average.
Data: Office of the Superintendent of Bankruptcy
The Cape Breton economy has suffered a challenging decade with the closure of the Sysco steel plant and last coal mine in 2001, and the decline of the pulp and paper industry in more recent years.
At the same time, insolvency across the country peaked in 2009 after the US economic crisis and debt in general is on the rise. This week’s report from Transunion, one of the countries two major credit reporting agencies, shows a small increase in debt loads over this time last year.
Tamara Ryan, the Coordinator of Service Nova Scotia and Municipal Relations’ Debtor Assistance Program, which provides credit counselling and administers consumer proposals, says people tend to get in financial difficulties over a period of a few years.
“People struggle for a while, robbing from one piece of credit to pay another, and eventually reach the limits,” she says.
She also notes that many consumers have trouble establishing priorities for paying back money they owe – in some cases choosing to forgo mortgage or utility payments in favour of bills that are less critical to their standard of living.
Consumer Proposals
While bankruptcies in the province are still very high, there is also an increase in the small minority of consumers making proposals(See sidebar) instead.
Generally, consumers who enter consumer proposals are not required to sell their property. They also must make arrangements to pay their debt within 5 years, which means they can begin to repair their credit sooner.
While consumer proposals are not for everyone, Ryan says they’re ideal for people find themselves in a “Catch-22” situation, where they have enough to pay some of the bills, but can’t keep up with the payment schedules they’ve agreed to.
This option is also good for creditors, who, by showing flexibility, are likely to see more of the money they are owed.
Recent Complications
Ryan notes that the numbers of people accessing credit counselling through the province’s Debtor Assistance program have been dropping.
She acknowledges that this is partly because of consumers’ improved financial situations, but also worries about “heavy” media coverage by debt settlement agencies, largely based in the United States.
She says these companies often advise debtors to not pay any of their outstanding bills or contact any creditors until they have amassed a lump sum payment. This advice is exactly the opposite of that given by licensed trustees in bankruptcy, who administer consumer proposals and bankruptcy proceedings on behalf of consumers.
She’s also concerned about fees charged by the agencies. “You should not have to pay money up front to get out of debt,” she says.
There are 35 licensed trustees registered in Nova Scotia, as well as several not-for-profit options, including the program administered by the province.
Keeping it in Perspective
It’s important to note that even with insolvencies at an all time high, it affects a very small number of citizens. In 2009, when insolvency was at its peak in Cape Breton, just nine in one thousand people (that’s less than one percent) declared bankruptcy or made a consumer proposal.
Good news on the horizon?
There is some encouraging news in these statistics.
According to Transunion, consumer defaults on debt have dropped – with an over 15% reduction in the number of Canadians who are not paying car loans, and slightly lower reductions for credit card and line of credit defauts.
And, with the exception of the North Shore, insolvency rates across Nova Scotia dropped in 2010 – the last year compiled statistics are available.
Data: Office of the Superintendent of Bankruptcy
At a provincial level, insolvencies continued to decline in 2011, and first quarter statistics from 2012 are also encouraging.
More About Consumer Proposals
- In a consumer proposal, a debtor who owes less than $250,000 makes a formal agreement with the companies he owes money.
- Under these agreements the debtor may:The debtor is also required to attend two debt counselling sessions.
- pay only some of the debt;
- make smaller payments over a longer time frame;
- make another agreement that works for both the debtor and his creditors.
- Many not-for-profit organizations provide these services, or you can use Service Nova Scotia and Municipal Relations’ Debtor Assistance program.