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Consumer proposals on the rise

Consumer proposals on the rise

Posted on: 3/22/2018 | Author: ATB Financial's Economics + Research Team


One of the most telling signs of economic hardship in Alberta is the pressure it puts on household finances, particularly borrowing. To be sure, credit can be used effectively and wisely. But at times consumers find themselves stretched to the limit. Defaulting on that credit is sometimes the unfortunate result.

The orange line in the graph below shows the trends in consumer bankruptcies in Alberta over the last four years. The impact of the recession can be seen as bankruptcies rose from a monthly average of around 350 to well over 400. They peaked at 515 bankruptcies in March of 20​16.

But another statistic collected and reported by the government is a “consumer proposal.” The definition of a proposal is “An offer to creditors to settle debts under conditions other than existing terms. A proposal is a formal agreement under the Bankruptcy and Insolvency Act.” (Office of the Superintendent of Bankruptcy Canada). Consumers who find themselves in arrears and are having difficulty managing their credit can make a formal proposal to their financial institution to avoid default. It is the precursor to bankruptcy.

The blue line in the graph below shows consumer proposals over the same period. While bankruptcies have indeed risen, consumer proposals have increased by a much greater degree. They’ve nearly doubled between 2014 and 2017. This suggests consumer bankruptcies could still rise in 2018--especially since interest rates have increased in recent months.

New vehicle sales, graph​​​

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