While Canada was spared the disastrous impact of the Economic Crisis of 2008 experienced by our neighbors to the south, the statistics on personal filing for bankruptcy in Canada show we did not emerge without feeling some pain.

By the end of 2008, approximately 90,000 Canadians found themselves filing for bankruptcy in Canada, an increase of 10,000 from 2007.  Once our exports to the United States began to decline and our unemployment ticked up in 2009, the situation worsened.  There was a 28% increase in personal filing for bankruptcy in Canada at the end of that year.  The 90,000 at the end of 2008 had grown to 116,000 total bankruptcy filers in 2009.

In the third quarter of 2010, the picture improved considerably, with an 18% drop in filings, down to 95,000.  Is the crisis over and will personal filing for bankruptcy in Canada continue to decline? 

Obviously, no one can predict the future with 100% certainty.  However, there are other statistics that can point to potential future outcomes.  The first is interest rates.

Interest rates the world over are at historic lows.  Given the prospect of an economic recovery that is even now underway, it is highly unlikely interest rates will go down further.  Hardly anyone disagrees with the expectation the only place interest rates have to go is up.  The question is by how much and how fast.

Consumers will feel the pinch of rising rates the most in two areas – mortgage rates and credit card rates.  If your home mortgage is set to renew in the near future, chances are your renewal will come at a higher rate that will increase your monthly mortgage repayment.  Can your budget withstand the increase?

If some of your credit cards raise their interest rates, you will agree to either pay or close the account, in most cases.  Can you afford higher monthly minimums?  If you are now using credit cards for daily living expenses and even to pay other bills, can you live with less available credit due to closing some of your accounts?

To answer these questions you need to know your debt-to-income ratio.  How much of your monthly income goes towards debt repayment?  If your ratio is high, filing for bankruptcy in Canada should be of real concern to you.

As a nation, household debt has exploded, reaching record levels at the end of 2010 – 1.48 trillion dollars.  Financial experts from coast to coast have been warning that debt levels so high do not bode well for the future.  Canadians may be sitting up and taking notice.  Household debt has decreased at the beginning of 2011 – down to 1.46 trillion.  Some experts see a significant slowing down of consumer willingness to take on more debt.

If this trend continues, those Canadians wise enough to reduce their household debt right now will be better prepared to withstand interest rate rises as well as other unforeseen economic calamities.  Those Canadians who ignore the warning signs and allow their household debt to grow will be prime candidates for filing bankruptcy in Canada at some point in the future.