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I have written in the past about the prevalence of big-business financial woes that splash across the news on a regular basis: good old Eaton’s, and more recently Air Canada and Stelco.
I will state straight off that I am not a bankruptcy specialist, but as a business lawyer I still have a lot of exposure to the problem. Today, I would like to focus more on the little guy and give my readers a “heads up.”
In 2005, there were 111,807 bankruptcies and credit pay back proposals in Canada. These were broken down as follows: 84,638 consumer or personal bankruptcies; 7,519 business bankruptcies (these are incorporated companies); 1,682 business proposals; and 18,022 consumer pay back proposals.
Those numbers are staggering when you consider that our country’s population is about 32,000,000.
They translate into a lot of financial misery for a lot of people. Of utmost importance to note is that by far the largest number of bankruptcies are personal bankruptcies, which include all of those sole proprietorships (small businesses that are not incorporated.) It is the small business and the personal bankruptcies that make up the vast majority of these numbers.
There also seems to be a growth in bankruptcy and insolvency because of the quickly changing business environment and the vast increase in the use of debt as a financing method for small businesses. What is increasingly alarming is the increase in the growth of bankruptcy among women (now close to a 50:50 ratio with men,) an increase with young people and the ever expanding self-employed group of workers. One wonders why in the past few years the payday loan lenders have seemed to spring up everywhere — to meet an obviously growing need?
The person you are directed to see if you find your debt burden too crushing is a Trustee in Bankruptcy, who generally has an accounting background. They can offer you solutions to your financial woes, but there are pitfalls to be wary of:
- Student loans are not bankruptcy protected (you still have to pay back the government.)
- Although you may have promises of becoming a discharged bankrupt within as few as nine months, the record of this financial mishap remains on your credit rating for up to seven years;
- Mortgage lenders, credit card companies and even cell phone enterprises are extremely reluctant to go any where near discharged bankrupts unless they receive much higher rates of return or pre-paid deposits.
- The most common form of bankruptcy is a restaurant.
These are just some general items to mull over. In my next article, I will address perhaps some ways to avoid these pitfalls and keep you out of what in Victorian times would have been Debtor’s Prison.
Jeffrey D. Cowan, B.A., B.Comm, LL.B., M.B.A., is the Principal of Cowan & Taylor, Barristers & Solicitors which practises in the areas of business and real estate law. Cowan appears in Your Money every other week. E-mail firstname.lastname@example.org call 416-363-5046 with questions for future columns. The information contained in this article should not be relied upon as legal advice.