BC real estate and personal bankruptcies

Dropping real estate values are sending more British Columbians into financial crisis and causing a spike in personal bankruptcies, according to professional debt counsellors.

Federal Industry Ministry data show that B.C. consumer bankruptcy filings for August were up more than 10 per cent over the same period last year.

August also saw a 16.3-per-cent increase in proposal filings, an alternative to bankruptcy.
And that was an improvement over July, when B.C. consumer bankruptcy filings were up 14 per cent over the same period last year and proposal filings were up 20 per cent.

"It's a big jump," said B.C. Association of Insolvency and Restructuring Professionals director Lana Gilbertson. "We don't know if it will continue upwards, but during the recessions of 1981 and 1990-91 there were rapid increases in insolvency rates.

"Our professional community is seeing more and more individuals who can't sell their property for what they thought it was worth and who can't refinance or borrow more money against their property. They're stuck," she said.

For several years, Canadians have suffered from high levels of household debt, low rates of personal savings and feelings of stress about their finances, said Gilbertson.

"But a strong real estate market in B.C. kept many afloat as homeowners were able to use a growing equity in their property to offset their consumer debt," she said.

That's coming to an end, however, as a slowdown in the real estate market is seeing home prices dropping in many regions.

Gilbertson described the plight of one Metro Vancouver couple, both working and in their late 20s and expecting their first child next year. They own a condo worth $250,000 and had increased their mortgage by $40,000 two years ago to pay off some debt.

"Over the following two years they have borrowed again to finance a web-based home business and have generally used up credit cards and lines of credit and personal loans, so that their unsecured debt is $105,000 in excess of their mortgage," said Gilbertson.

She said there wasn't any room in their household finances to adequately service the debt and there were no other assets to draw on. As well, the couple was facing a loss of income in 2009 when the wife took maternity leave.

Instead of the couple declaring bankruptcy, Gilbertson said she was able to negotiate a debt settlement of $40,000 to be paid to creditors over the next five years.

"It got them out of a hole. They are insolvent, but they've got a repayment plan in place and it is a lot better than their being bankrupt," she said.

While homeowners are increasingly at risk, those under the age of 35 and those on fixed incomes or pensions are also feeling the pressure of consumer debt, Gilbertson said. She said bankruptcy trustees, many of whom were Chartered Insolvency and Restructuring Professionals, can help consumers look for alternatives to bankruptcy.

"They can provide debt and credit counselling and are the only professionals who can administer formal debt repayment or settlement strategies," she said.

(prepared by Gerry Bellett/Vancouver Sun)