Canadian Bankruptcy Rules

Jun 7th, 2014 | By | Category: Guide

New statistics from the Canadian government and slower home sales around the country show average Canadians losing ground, and threatened by high debt loads.

The average Canadian household now earns only 63 cents for each dollar of debt– that is the highest ratio of debt to income recorded in Canada to date, and near to the levels seen in the United States before the housing market crashed in 2008.

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While troubling, it likewise must be noted that Canadians on average have more equity in their homes than their American counterparts held before the market crashed. ‘ With 70% equity, most Canadians are far better off than their Americans who had only 30% equity in their homes, on average, before the market melt down,’ says Canadian debt consolidation and credit expert Don Antle, President of Options Credit Canada.

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With that said, revisions to Canadian mortgage lending rules, along with the menace of rising interest rates, amount to a great threat to Canadians’ ability to resolve their debts in timely fashion.

In June, Ottawa capped CMHC-insured mortgage terms at a drop from 30 years, 25 years, and the equivalent of a nearly one percentage point increase on a typical mortgage– an bump of $152 per month on a $300, 000 mortgage, Antle says. In 2011 some 40 per cent of all mortgages in Canada were amortized over 30 years.

The reduction to 25 year maximum terms is the 3rd time in three years the administration has moved limits down, first from 40 years maximum to 35, then to 30, and now 25.

Recent numbers in the Canadian housing market indicate the new rules are having an impact. In September, Canadian home resales dropped 15 per cent compared with the same month a year earlier. Local markets such as Vancouver fell 32.5 per cent, and Toronto dropped 21 per cent.

While prices have generally not been effected yet, according to the most recent reports, it seems inevitable that a pull-back in home prices will be a reality soon.

With less equity in their homes, and higher mortgage payments due to shorter amortization periods and higher interest rates, a greater number of Canadian households will surely start to feel the squeeze.

According to a recent BMO Housing Confidence Report for 2012, 72 per cent of participants say they would feel significant strain from a small increase in mortgage payments, and 16 per cent mean that a 10 percent increase in mortgage payments would mean they probably would be unable afford their home.

Debt settlements have been gaining popularity as debt-strapped consumers have been turning to credit counselors and debt management agencies to negotiate cut-rate debt repayment by using the equity in their home to pay down high interest rate loans such as credit cards and department store cards, some of which carry annual interest rates of 30 per cent or more.

Other options available to consumers who find themselves over their heads in debt include debt management programs and bankruptcy, the latter being the most serious course of action.

Bank of Canada rates are supposed to rise starting summer 2013 at the earlier, and in the autumn at the latest, according to most industry experts.


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