For the first time since late 2005, the number of personal bankruptcies is rising on a year-over-year basis, says CIBC World Markets in a new report. And this change of direction is taking place exactly when the Bank of Canada is raising interest rates.

The three-month moving-average number of personal bankruptcies rose by 0.8% (year-over-year) in May, CIBC reports, adding that his was the first increase since November 2005. “The good news is that on a cumulative basis, the number of personal bankruptcies is still falling, but at a slower pace,” it adds.

However, bankruptcies in Ontario and Quebec (the provinces that are most likely to feel the negative impact of the recent surge in the value of the dollar) are now on the rise, CIBC reports.

It also sees several other warning signs: the value of credit card debt that has been delinquent for more than 120 days has surged recently; the gross write-offs rate in the term-loan portfolio is also on a clear upward trajectory; and, the number of proposals for personal bankruptcies is rising by 14.9% on a year-over-year basis, the fastest pace since the 2001 recession.

“Note that the recent increase in the number of personal bankruptcies and the surge in proposals occurred during a period of an extremely hot labour market and a still very low interest rate environment,” it says. “Now, with interest rates rising, and the labour market likely to soften a bit, the likelihood is that the coming six-12 months will see a gradual (albeit modest) rise in the number of bankruptcies.”

It expects the sharpest increase in Ontario and Québec, and suggests that the job market will be a bigger factor than interest rates, which are only expected to rise modestly.

“Overall, we expect the number of bankruptcies to rise by 3% in the coming year — clearly a change of direction, but still only a modest rise relative to previous cycles,” it says.

Additionally, CIBC says that the number of business bankruptcies continues to fall. The last increase in business bankruptcies was in 2002, it adds. “While the pace of the decline is somewhat more modest than the 15% pace we saw in early 2006, this performance is impressive,” it concludes.