During tough economic times, bankruptcy filings tend to go up. Widespread job loss normally pushes people to find formal solutions for dealing with their debt.
However, during the COVID crisis of 2020-21, the number of people filing for bankruptcy in Ontario dropped dramatically.
Indeed, CERB (Canada Emergency Response Benefit) as well as the financial assistance offered by the banks have helped many people weather the storm
However, these historically low insolvency numbers do not mean that Ontarians have found the solutions they need to effectively deal with their debt. On the contrary, they shine a light on pent-up demand for debt relief services. Many have needed to take on extra debt to survive the financial crisis of COVID-19 and are still dealing with ongoing employment and affordability issues.
The reality is that bankruptcy will be an effective debt relief solution for many indebted households. But there are important obstacles to overcome. When it comes to bankruptcy and debt, there is still a lot of stigma holding people back from getting the help they need.
We recently spoke with Ilan Kibel, a BDO Licensed Insolvency Trustee in the GTA, about his thoughts on the economic climate and its effects on people’s debt levels.
“Many Ontarians are in a holding pattern when it comes to their debt. Of course, government programs like CERB, financial relief from banks and even the housing boom have all contributed to the sharp decrease in insolvency filings in Ontario. But there’s also a great deal of uncertainty about the future. Many people are trying to hang on for as long as they can before finding more permanent solutions to their debt.”
— Ilan Kibel, BDO Licensed Insolvency Trustee.
In the GTA, where lockdown measures have been some of the strictest and longest-running in the world, life still feels very abnormal. It can be hard to know what to do. Making major decisions about your finances during these times is intimidating.
“It can be very easy to feel overwhelmed, but we encourage people not to feel paralyzed by what is happening. The most important thing to do is to speak to someone who can review your situation and provide options based on what you’re going through,” explains Ilan.
The second and third waves have been particularly crushing for small businesses and certain industries in the province, like hospitality and retail. It’s why banks and lending institutions are also still hesitant. Debt collection is still far from business as usual. “Debts aren’t being collected in the same way as they were before COVID. Banks remain flexible. No one wants to be the first to ramp up their collections’ activities. But these will resume eventually,” explains Ilan.
Now is a good time to act. If you’re struggling with unmanageable debt, you can speak with a Licensed Insolvency Trustee (LIT) and explore all your debt relief options free of charge. They can advise you on all things related to debt, not just bankruptcy.
In Ontario, the third wave of the pandemic feels like we’ve returned to square one. Strict lockdown measures came back with a vengeance. But for many people, the financial challenges of the pandemic have been ongoing. And for them, their financial struggles are isolating.
It may seem like the world is focused on how quickly the economy will recover and that no one wants to be reminded of the hardships. “I often speak to clients who feel like they’re alone in their struggles because they never get a chance to open up with friends and family. They feel like no one wants to hear about how hard it is,” says Ilan.
Speaking to a professional, like an LIT, is a good opportunity to understand the other side of the coin. You are not alone in your struggles. The financial crisis is ongoing and will be for some time. An LIT helps people in your situation every day. They can tell you about other people’s financial recovery journey and help you understand yours.
Now that the majority of Canadians have filed their taxes, many will have a better sense of their financial situation. (Deadline for income tax filing was April 30, but if you or your spouse is self-employed you have until June 15 to file). Those who received CERB, for example, may owe money to the government. As you will have noticed, unlike other forms of income, taxes on CERB were not withheld at source and will be collected as part of your income taxes this year.
“For many people this year, a tax bill can be extremely stressful to deal with,” says Ilan. “Even though we are expecting the CRA to be more lenient with interest charges this year, the most important thing to do is to file. And if you owe money, know that you always have options”.
Tax debt can be challenging to pay off all at once and can accumulate over the years. If you have tax debt, there are steps you should take, from negotiating a payment plan with the CRA to speaking with a Licensed Insolvency Trustee, who can walk you through all your debt relief options. Tax debts are eligible to be included in both bankruptcy and a consumer proposal.
“I often meet people who are interested in filing a consumer proposal,” says Ilan. This is no surprise; consumer proposals are generally three times more popular than bankruptcies in Ontario. They are often a flexible and affordable option for dealing with debt. Many people are also eager to pay back a portion of the debts they owe and will try to avoid bankruptcy at all costs. “It can be a question of pride,” says Ilan.
There are times, however, when bankruptcy is the better option. “If you have lost your job, for instance, it can be very hard to get a consumer proposal approved. If your household income is low, bankruptcy is the faster and more affordable option,” explains Ilan. “Rather than taking five years, you can be discharged from bankruptcy in as few as nine months.”
A Licensed Insolvency Trustee can help you better understand the differences between a consumer proposal and bankruptcy.
One of the main reasons why debtors gravitate to the consumer proposal over bankruptcy is because of the stigma that people associate with bankruptcy. People often equate bankruptcy with feelings of shame or guilt. They may feel like filing for bankruptcy is morally “wrong”. But this type of thinking doesn’t help you move forward and is never part of the solution. In fact, it may be the reason why you’re delaying asking for help.
“Even during a major financial crisis, many people still feel the moral weight of bankruptcy and will try to avoid it. If there is a silver lining, it’s that the crisis should alleviate the feelings of guilt or shame. It’s not people’s fault that they have lost their jobs and are having financial difficulties. Hopefully, this stigma will dissipate. People are not alone in their struggles, and they can learn from each other’s stories.”
— Ilan Kibel, BDO Licensed Insolvency Trustee.
The economic problems we are facing continue to evolve every day. We are living in complicated times that make important financial decisions seem even more intimidating. “But the reality is that bankruptcy and insolvency services will be an important safety net for many people in Ontario. An LIT can help you find the protection you need,” says Ilan. “Creditors understand that even during normal times bankruptcies are a necessary part of the lending cycle. People with debt should understand this too.”
Are you thinking of filing for bankruptcy in Ontario? It helps to talk about it with people you can trust. Book a free initial consultation and explore all the debt relief options that are available to you.