Rate of bankruptcy in the U.S. is nearly twice the rate in Canada.
Maroney on Money for September 20, 1998
It may come as a surprise to learn that the rate of bankruptcy in the U.S. is nearly twice the rate in Canada. Based on population, in 1997 there were approximately 5.1 bankruptcy filings per thousand in the U.S., whereas in Canada the rate was 2.9 filings per thousand.
Perhaps even more surprising is the fact that the lowest rate of bankruptcy in Canada is found right here in B.C. where we are tied with the Atlantic region at 1.9 filings per thousand. So which province has the highest bankruptcy rate? Quebec weighs in at 3.7 per thousand closely followed by Alberta, of all provinces, which registered a rate of 3.6 per thousand.
In my last article I outlined, tongue in cheek, 13 easy steps to achieving a passing grade in Bankruptcy 101. While I cannot speak from experience, I can imagine that filing for bankruptcy is anything but a pleasure and most people would go to great lengths to avoid going bankrupt.
So if you find yourself in difficult financial circumstances, what are your options? Simply put the options can be broken down into two broad categories: do-it-yourself and professional help required.
On the do-it-yourself front you can start by considering consolidating your debts. Depending on your circumstances, it may be possible to arrange a single loan of sufficient size to repay your creditors. Under this approach, you will reduce your creditors to a manageable number of one. Not only will this control your stress level but most likely reduce your interest cost as well. Often lower interest rates are charged on debt consolidation loans than the notoriously high rates charged on some credit cards.
For this approach to be successful, you’ll have to take the scissors to your credit cards. Consolidating debt while continuing to charge your credit cards to the limit is merely an exercise in postponing the inevitable.
Another alternative is to contact your creditors, explain your situation and attempt to work out a repayment schedule. While some creditors may want to play hardball, you will probably find that many are willing to make arrangements to work with you. Once you’ve worked out some form of arrangement, make every effort to stick to it. If it becomes necessary to alter the original deal, you’d be well advised to talk to your creditors in advance; rest assured that creditors don’t like surprises.
Whatever you do, don’t take the head-in-the-sand approach. Avoiding your creditors will solve nothing and only harden their resolve to collect what is owing to them.
Looking at the professional help options, you may want to consider working with a credit counsellor. These people will put together an informal proposal to your creditors to enable you to repay your debts in an orderly fashion while still preserving your credit rating. Unlike debt consolidation, there is no borrowing involved in this approach.
In B.C., application for a Consolidation Order can be made under the Bankruptcy and Insolvency Act. Essentially, this provides breathing space to repay creditors over a period of time (usually three years) while keeping creditors at bay and wage garnishee orders out of the picture. This is a court ordered procedure and you should contact the Debtors’ Assistance Branch if you would like more information.
Under this same Act, a Trustee can file a Proposal on your behalf. As the name implies, a Proposal is simply an arrangement between you and your creditors under which you extend your repayment schedule and/or repay only a portion of your debts. This is not do-it-yourself work, so you will have to enlist the services of a Trustee.
For individuals, there are two types of Proposals that can be filed:
1. If your total debt (excluding debts secured by your home) is less than $75,000, then you can file a Division II Proposal commonly referred to as a Consumer Proposal. If your creditors reject your Proposal, you will not be automatically forced into bankruptcy, however, you will be required to undergo counselling.
2. In the case of Division I (“Other”) Proposals there is no upper limit on the amount owed. If your creditors reject your Proposal, you will be automatically forced into bankruptcy.
Clearly, filing a Proposal is serious business since you’ll want to maximize the chances of acceptance by your creditors. This is where professional help is absolutely essential. If you find yourself in this situation, you’ll find all the help you need under Bankruptcy-Trustees in the Yellow Pages.
Jim Maroney is a chartered accountant with Andrews Brown Maroney in Maple Ridge.
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