'Everyone on edge right now' as insolvency filings climb month over month

A higher cost of living in Newfoundland and Labrador last year also brought with it a jump in the number of consumer insolvency filings, as stressed consumers sought relief for bills they cannot pay. 

Compared with the previous 12 months, filings for insolvency increased by 8.8 per cent overall at the end of October 2017, according to the most recent data available from Statistics Canada. 

 "People are just finding it a lot more difficult to stretch the money that they're earning," said Nancy Snedden, a licensed insolvency trustee with the St. John's branch of BDO Canada. "To have a nine per cent increase is certainly concerning." 

The provincial cost of living increased two per cent from November 2016 to 2017, according to Statistics Canada.

Insolvency filings increased month-over-month throughout 2016 and 2017, Snedden noted.

As of October 2017, the year-over-year increase for Newfoundland and Labrador was the second-highest of all provinces, behind only Saskatchewan at 10 per cent.

Continuation of a provincial trend

The increase in the number of bankruptcy filings in the province continue a trend seen in the province over the past few years, after a multi-year decline in filings.

"If we go back eight to 10 years ago, Newfoundland was a pretty high filer by Canadian standards," said Ian Penney, a licensed insolvency trustee with Janes & Noseworthy. 

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Filings declined significantly in the province earlier in the 2010s, Penney said. About three years ago, they began increasing again.

"There will probably be more insolvency filings in Newfoundland [for 2017] than there was during the recession of '08 to '09," Penney told Here & Now.

It is hard to know at this point if the trend will continue in 2018, but there is cause for concern, Snedden said.

Economic forecasts are predicting tough times for Newfoundland and Labrador for at least the next five years, and potentially the next decade.

With 65 per cent of people in the province living paycheque to paycheque, jumps in taxes and fees — or an increase in the interest rate from the Bank of Canada — could push people from a tight-but-manageable financial situation into an unmanageable one, Snedden said.

"I think everyone is on edge right now," Snedden said.

Consumer proposals increasingly chosen

The bulk of the increase in consumer insolvencies in Newfoundland and Labrador comes not from bankruptcies but from consumer proposals. Bankruptcies were actually down 7.7 per cent in October 2017 compared with a year earlier, while consumer proposals were up 41.5 per cent.

A consumer proposal involves working with creditors to come up with a payment plan to resolve debts.

People are just finding it a lot more difficult to stretch the money that they're earning- Nancy Snedden

In a proposal, the debtor pays a percentage on the dollar of what is owed over a set period of time.

For those who are eligible, a consumer proposal can result in less of a hit to the bank account than a bankruptcy, Snedden said.

It also allows people to hold on to any assets they may have, and to know exactly what they'll be paying month to month.

"A consumer proposal is an alternative to bankruptcy, typically for people that have a higher income, a stable job, maybe some equity in their house or some other assets," Penney said.

"It's a nice alternative to bankruptcy for people that can afford it. But make no mistake, bankruptcy is still a lot of what we do."

'Reach out and get some help'

Penney pointed to two main reasons for bankruptcy filings.

The first is simply taking on more debt than a person can handle, especially as some in the province are seeing their incomes decline due to downturns in the resource sector, both at home and in Alberta.

"I think a lot of people got sort of caught up in the good times and maybe bought houses that were a little more than they should have taken on, or larger vehicles or cottages, and things like that," Penney said.

An increasing number of seniors are filing for bankruptcy as well, he said.

"We're seeing a lot of people of retirement age, or near retirement age, with little or no savings, still carrying debt, still have a mortgage on the house," Penney said.

But while seniors and people going through a marital separation or divorce continue to make up a significant proportion of those filing, there are an increasing number of people looking for financial assistance who may have been solvent quite recently, Snedden said.

"People just need help," Snedden said. "They're paying interest on their debt, they can't get ahead."

It is important for consumers to know that there are options available if they are struggling financially, she said. Even if someone does not qualify for bankruptcy or a consumer proposal, they can visit a credit counsellor to get help with budgeting and debt management.

"Don't continue to struggle," Snedden said. "Reach out and get some help."