Insolvency up 35% in Alberta, marking largest jump across the country

It's been a rough financial year for Albertans. While oil prices have shown signs of stabilizing, many households are still struggling.

Economists hoping rebuild from Fort McMurray fire will help economy rebound

Albertans have less money in their wallets these days as the insolvency rate has jumped 35%. (iStock)

It's been a rough financial year for Albertans.

While oil prices have shown signs of stabilizing, many households are still struggling.

The number of people drowning under debt load and becoming insolvent is up 35 per cent this year over last in the province, marking one of the highest increases in the country, Jeffrey Schwartz, executive director of Consolidated Credit Counseling Service told the Calgary Eyeopener.

"It's not just the oilpatch, but it's also the [Fort McMurray] fire as well and any ancillary businesses that support those industries are having significant difficulties and we're seeing a bit of a lag effect," he said.

"This isn't something that happened over the last quarter, this is something that's been going on for the last year or so. People have been able to keep their head above water for quite some time but if they're becoming insolvent or going to the extreme of filing an insolvency, that's where they've really come to the end of their rope."

Insolvency is not the same thing as a bankruptcy.

The difference, said Schwartz, is that insolvency is where someone makes an agreement to repay the debt, but usually at a reduced rate, while bankruptcy is when debts are not able to be repaid.

"There are insolvency options like a consumer proposal where a consumer will make an offer on their debt, anywhere from 30 cents to 100 cents on the dollar, stopping the interest clock and make some sort of structured payment plan," he said.

Stagnant oil prices and a drop in activity due to the fire also contributed to a 0.6 per cent drop in the province's GDP in May, the biggest drop since 2009.

Economist Trevor Tombe says the province's GDP shrank by 0.6% in May, the biggest drop since the 2009 recession. (Monty Kruger/CBC)

"What was unique about this GDP drop was it's entirely explained by the drop in the energy sector in Canada," said Trevor Tombe, an assistant professor of economics at the University of Calgary.

"That's primarily oil and gas extraction but also reductions in refinery activity, things of that nature."

What goes down must come up

Thing could rebound soon.

"The Fort McMurray fire is almost surely the explanation behind the drop in the energy sector and that should rebound very quickly," said Tombe.

"We should see a big recovery in June then another in July then as reconstruction activity takes place in the latter half of the year, GDP growth should be higher than expected."

Alberta is not the only province seeing an increase in insolvency, said Schwartz..

"We're also seeing it in Saskatchewan and Newfoundland as well," he said.

"And even to some degree where residents of other provinces have found employment in the oilpatch and no longer are employed there, they go back home and they can't handle their finances. In many cases, they are filing insolvency in their own province as well."

Options available

There are options for people struggling financially.

"There's many things people can do to get their budgets under control so they don't necessarily have to file an insolvency and one of the first things we suggest is for people to create a budget to understand where they are and start looking at that budget seriously and say, 'where can I cut back, where can I find extra money in my cash flow so I don't have to file an insolvency?'" said Schwartz.

Electronic payment options make spending money easier, but can also empty your bank account quicker too.

"Everybody loves their smart phones in Canada and they love the novelty to just tap and go," said Schwartz.

"It may only be a cup of coffee, it may only be a lunch, but if you add that up day-after-day, month-after-month, that's going to have an impact, hundreds and thousands of dollars over the course of a year."

With files from the Calgary Eyeopener