Invest in Canada

Bankruptcies jump 10%, pace expected to quicken

by investor on 08/01/09 at 1:55 pm

It’s a predictable pattern in any downturn: house prices fall, unemployment goes up and, then, personal bankruptcies surge. But this downturn already has broken the mould, with the number of Canadians falling into serious financial straits rising faster and earlier than expected.

For the 12-month period ended November, 2008, personal bankruptcy filings are up 10 per cent from the same period the year before, according to data released yesterday by Industry Canada.

And with job losses expected to mount, the rate of increase could rise as high as 20 to 25 per cent year-over-year in the year ahead, said Benjamin Tal, economist at CIBC World Markets Inc.

“You might actually say that it’s surprising that bankruptcies have already risen by 10 per cent, given the fact that we haven’t already seen the main driver of bankruptcies, namely unemployment, getting into more dangerous territory. This will happen in the course of 2009,” Mr. Tal said.

CIBC estimates the unemployment rate will average 7.6 per cent in 2009, and could reach up to 8 per cent during the course of the year. In November it stood at 6.3 per cent, a slight increase from the month before as the manufacturing sector in Ontario continued to shed jobs.

“In the previous recession consumer bankruptcies rose by as much as 45 per cent on a year-over-year basis. This recession is not a mild one, it is consumer-led, and that means we might see a much more notable increase in bankruptcies than we have to date,” Mr. Tal said.

In the 12 months ended November, 87,981 Canadian consumers filed for bankruptcy compared with 80,050 in the same period the year before, according to Industry Canada’s data.

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