Insolvency is the state where an individual or company cannot afford to pay off their debts. By declaring insolvency, they acknowledge that the burden is too big for them to repay effectively. The move also acknowledges that they will need to access debt relief methods like consumer proposals, division 1 proposals or bankruptcy filings to clear the damage and achieve financial stability once again.
Research is showing that rates of insolvency are currently rising and that there are no signs of them slowing down. Read ahead to learn about preventative measures that someone should take when they’re insolvent and find out why the rates of this financial problem are getting higher.
What Should You Do If You’re Insolvent?
The first thing that you should do when you realize that you can’t repay your debts is see a licensed insolvency trustee. They will assess your financial situation during a consultation and see what debt relief options work best for you.
If you’re unsure whether you’re too overwhelmed by your debts to pay them off, you can always go to a trustee to get a clear answer. Or you can click here to see the most popular financial danger signs and figure out whether you’re scratching most of the signs off of the list.
Why Is This Happening?
Currently, the rates of insolvency filings are noticeably high — they haven’t reached this significant level since the financial crisis in 2008. These rates were created by a combination of social factors, giving people greater debt loads to repay and lower incomes to work with.
High Cost of Living
The first factor is the rising cost of living. Housing is so expensive that people are forced to spend the majority of their budget on their monthly rent or mortgage costs. The cost of living is so astronomical that people making the minimum wage can’t afford it, even when they make sacrifices with essentials like internet and phone payments. The situation pressures people in the lowest income brackets to plunge deeper and deeper into debt to keep their housing.
High Interest Rates
In 2017, the Bank of Canada raised the interest rates from 0.5% to 1.75% — this is the highest it’s been since 2008, during the financial crisis. At the time, economists noted that there would likely be a rise in insolvencies across the country because of the hike, but that the results would be delayed by two years. And, just like they predicted, the blowback from the decision started to appear in 2019 and has continued to grow. Luckily, the bank hasn’t revealed any plans to boost the rates in the upcoming months.
These are the other contributing factors for the rising insolvency rates:
- Stagnant wages
- Job insecurity
- Student debt
- Predatory lending practices
These statistics didn’t appear out of nowhere. They were caused by a combination of social issues that pushed citizens to take on unsecured debt to make ends meet. Now, their debts are too much to handle, and they have little choice but to declare insolvency and look for a way out.