Edmonton

More Albertans fighting to avoid bankruptcy

Consumer bankruptcy rates in Alberta are climbing steadily, but the number of people making consumer proposals in a desperate bid to avoid bankrupcy is rising even more quickly, an economist says.

Insolvencies set to rise as unemployed Albertans hit end of severance packages

Insolvency will become more prevalent in the province as recently unemployed Albertans hit the end of their severance payments, says economist Todd Hirsch. (Shutterstock)

Consumer bankruptcy rates in Alberta are climbing steadily, but the number of people making consumer proposals in a desperate bid to avoid bankrupcy is rising even more quickly, an economist says.

Consumer insolvencies in Alberta rose by four per cent from last December to January, according to the Office of the Superintendent of Bankruptcy.

In the same period, the number of consumer proposals jumped by 40 per cent.

Consumer proposals are legally binding and enable insolvent individuals to avoid filing for bankruptcy by extending the time they have to pay off debt.

The reason this is possible is the low interest rates, said ATB's chief economist Todd Hirsch.

"It's not great if you're only making a minimum payment — you don't want to live in that kind of world — but making a minimum payment on something is better than defaulting on it," he said.

Hirsch said insolvency will become even more common as recently unemployed Albertans hit the end of their severance payments.

"Once those start to run out, then it really becomes a different situation for Albertans who are now without income. 

"I do think that we will see more strain on household income and household spending and as a result ... we will continue to see those consumer default levels rising over the next few months," he said.

"Even though that number of bankruptcies hasn't been rising very much yet, I do expect it to continue to swell higher over 2016 for that very reason."

Despite the current rate of insolvency, and the resulting bankruptcies and consumer proposals, Hirsch said the numbers aren't as daunting as they were six years ago during the 2008 economic downturn.

He predicted they would continue to climb until the end of 2016, but said he's hopeful oil prices will then rebound to bolster Alberta's economy.

"Thousands of Albertans are now at that point where consumer bankruptcy, defaulting on your consumer loans or on your mortgages is what they're being pushed into," Hirsch said.

"That's obviously a very negative thing. We don't like the idea of anyone having to default on their credit. But that is what's happening at the moment."

Hirsch said the next four to six months will be a real challenge for Albertans already struggling.

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