November 11, 2008 / 5:00 PM / in 9 years

Consumer, business bankruptcies poised to rise

TORONTO (Reuters) - There will be a steady upward march in personal and business bankruptcy filings in Canada as overspending and falling home prices catch up with individuals and as a slowing economy hurts businesses, experts in the field say.

“We’re definitely seeing an increase (in calls), I think that people are caught, they’ve been living on credit,” said Linda Stern, vice president of personal restructuring services at Deloitte & Touche Inc in Toronto.

Stern estimates her office is working on 30 percent more filings -- actual bankruptcies or proposals to pay off a portion of debt -- than at this point last year.

“We’re busy, every day we’re getting many calls and e-mails” as people explore their options, she said.

Her colleague, Rebecca McKinley, a trustee at Deloitte in Windsor, Ontario, a manufacturing center a stone’s throw from Detroit, said her office is dealing with about 17 percent more bankruptcies than last year.

“In the past year I have seen more and more instances of people who cannot afford their mortgages,” while at the same time their house values have dropped, McKinley said.

Canada’s Office of the Superintendent of Bankruptcy said last week that total bankruptcies in September jumped 28.4 percent from the same month a year earlier. Individual bankruptcies were up nearly 30 percent nationwide, but businesses also posted a 9 percent increase.

Economists at Bank of Montreal said this year-over-year surge in consumer bankruptcies marks the fastest rise since the mid 1990s.

At Toronto-Dominion Bank, economists said the numbers suggest headwinds for Canadian consumption at a time when the export side of the economy is hurting.

“The channels of wealth are deteriorating and consumers are now looking at smaller personal portfolios, not only due to stock market losses, but also the unwind in housing prices,” TD economic strategist Charmaine Buskas said in a research note.

Since the end of September, some well-known retail businesses have sought creditor protection after their U.S. parents filed for bankruptcy protection.

They include electronics chain InterTAN Canada, which is the Canadian subsidiary of Circuit City Stores Inc and operates almost 800 Canadian stores and dealer outlets under the banner The Source, as well as the Canadian subsidiary of home retailer Linens ‘n Things.

On Canada’s West Coast, where housing prices have recently declined more those in many other centers, boutique insolvency firm Boale, Wood & Co said it is getting more calls.

“There have been three people now who have come in to see us with stock-market issues, they borrowed against their portfolios, and the portfolio went from a lot of money to no money,” said partner Stephen Boale.

Even on the corporate side, where things have been humming along buoyantly for years, there have been “a bunch” of inquiries, said Boale, who is president of the British Columbia Association of Restructuring Professionals.

Some Vancouver condominium projects are in financial difficulty, while people who had speculated on Vancouver’s frothy condo market before buildings were built may be in for trouble ahead.

“There has been a substantial (housing) slowdown,” Boale said. “That may translate into more difficult pressures on those individuals.”

While the future “doesn’t look rosy,” he expects a steady increase in bankruptcy filings rather than a sharp jump.

Reporting by Lynne Olver; Editing by Peter Galloway

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