Redacted by Réjean J. Boucreau, trustee

with the collaboration of Jonathan Bisson

      In the February issue of Maclean's, the weekly Canadian publication exposed the problems of debt in Canada.¹ In the last year, the number of insolvent Canadians leaped from 115,000 to 160,000.² These numbers could be partly explained with the recent recession. If such was the case, the number of insolvencies should be expected to decline in the coming years. On the contrary, bankruptcy is rather more likely to increase, and that despite the current economic recovery.

      The culprit of such economic difficulties arises from a trend that already began in the 1990s: overwhelming household debt. In only a decade, the lines of credit alone went in Canada from 4 billion dollars to 200 billions, a leap of 4,800 percent; the average debt-to-income ratio went from 116 percent in 2008 to 142 percent in 2009.³ In comparison, to be considered ‘financially vulnerable,' a household spends 40 percent of its income in debt repayment.⁴

       While credit provides a useful tool to purchase a first house, a dream car or an education, debt can become a burden if it is not used carefully. The biggest danger currently is to be seduced by short-term low interest rates: the interest rates were purposefully kept low to help Canadians cope with the economic crisis, but they will certainly increase in the future. A small percentage increase can have dramatic repercussions on personal debts, particularly on large loans like mortgages. In short, high levels of debt are more significant in explaining the current increase in the number of insolvencies than the economic recession alone, thus the issue of debt and bankruptcy is far from being solved. Even before the recent increase in insolvencies, 1 percent of Canada's GDP was lost in bankruptcies each year.⁵ As Canadians, can we really afford to lose that much of our wealth to imprudence, by living above our means?

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1. Jason Kirby, ‘Awash in a Sea of Debt,' in Macleans, Vol. 123, Number 4, February 8 2010: 28-33.
2.Kirby: 33.
3.Ibid.: 29.
4.Ibid.: 30.
5.Office of the Surintendant of Bankruptcy Canada, ‘An Overview of Canadian Insolvency Statistics up to 2006,' http://www.ic.gc.ca/eic/site/bsf-osb.nsf/vwapj/Statsbooklet2007-EN.pdf/$FILE/Statsbooklet2007-EN.pdf [consulted on April 1st, 2010].