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Consumer bankruptcies stable, but proposals on the rise

Consumer bankruptcies stable, but proposals on the rise

Posted on: 9/17/2018 | Author: ATB Financial's Economics + Research Team

​​The Owl looked at business insolvencies in Alberta on Friday. While the total number of business bankruptcies has risen slightly, the number of businesses in proposals with their creditors is falling.

But the opposite is the case with Alberta’s individual consumers.

In June of this year, consumer bankruptcies totalled 445 — mostly unchanged from the range of between 400 and 500 over the past few years (see graph below). After a slight increase during the recession in 2015, total consumer insolvencies have been remarkably stable. This is especially surprising given the record level of household debt currently held by consumers.

But a more troubling trend is brewing with consumer proposals. (A proposal is an offer to creditors to settle debts under conditions other than the existing terms, and is often the precursor to outright bankruptcy). In June, consumer proposals with their creditors hit 902, the highest since the end of the global recession nearly ten years ago. Proposals have more than doubled over the last four years.

This suggests consumer bankruptcies could still climb, even though the recession is over. As well, interest rates are set to rise higher over the next year or so, which will push borrowing costs up. That will make it even more difficult for many consumers who are carrying a heavy debt load.

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