The Office of the Superintendent of Bankruptcy reports that the number of consumer bankruptcies and consumer proposals fell in Canada in 2006 by 4.3%, the first decline since 2002 and the largest decline since 1998, even though the level of debt is rising.

Consumer filings in Ontario declined by 2.1% in 2006.

The declining bankruptcy rate in the face of the increase in debt is largely due to a strong labour market. The unemployment rate in Canada declined for the fourth consecutive year to 6.3%, and is now at a 30-year low. Ontario’s unemployment rate is also 6.3%. The tight labour market also helped median hourly wages increase by 2.6% in 2006. These factors, combined with low interest rates, are making higher debt loads manageable for the “average” Canadian.

Today Canadians are carrying a record level of debt. Household debt continued to rise, up 9.8% in the first 10 months of 2006, and in September 2006 the ratio of debt to personal disposable income reached a record 122%. This means that for every $4 the average Canadian earns in a year, they now have $5 in debt.

For people living paycheque to paycheque, rising debt levels mean an increasing number of Canadians are only one or two missed paycheques away from financial disaster. A recent Bank of Canada survey found that the proportion of highly vulnerable debtors (those whose debt payments exceed 40% of gross household income) has risen by 23% in the first six months of 2006 (from 2.6% to 3.2% of the population).

Douglas Hoyes, a trustee in bankruptcy and co-founder of Hoyes, Michalos & Associates Inc., comments that “we are seeing an increasing number of Canadians with high debt who live paycheque to paycheque, and any drop in income could lead to serious financial problems.”

“The point we’d like to make,” says Ted Michalos, bankruptcy trustee, “is that people have to look beyond the good news headlines. With these massive levels of debt, the average Canadian cannot financially survive even a temporary job loss. Now is the time for people to try to reduce their debt and develop a plan to deal with their financial problems.”