After the oil crash, Albertans rush to bankruptcy in droves

A global slump in oil prices that wiped out tens of thousands of Canadian jobs is also driving residents of the country's top oil-producing provinces in droves toward bankruptcy, newly-released federal statistics show.

According to the Office of the Superintendent of Bankruptcy Canada, the proportion of Albertans who were unable to pay off their debts rose by 32.5 per cent from April 2015–2016. That’s well above average national consumer insolvency rate increase of 3.3 per cent.

Canada’s other oil and gas producers saw similar hikes in insolvency rates. In Newfoundland, where oil and gas represented 25.7 per cent of the provincial GDP in 2014, consumer insolvency rates rose 26.2 per cent. Saskatchewan’s spiked 22.5 per cent.

The insolvency statistics refer to people who cannot pay their debts and are in the process of declaring or being deemed eligible for bankruptcy by their creditor or creditors.

In contrast, consumer insolvency rates in Canada's two largest provinces - Ontario and Quebec - fell by 1.9 per cent and rose by 1.4 per cent respectively.

Alberta hammered by oil slump in 2014

Alberta was hit hard by plummeting oil prices in 2014, and unemployment continues to rise. According to Statistics Canada, Alberta, which holds the world's third largest reserves of crude behind Saudi Arabia and Venezuela, lost 24,000 jobs province-wide in May 2016, half of which were in the natural resources sector.

Statistics Canada also found that the total number of hours worked across the province decreased by 5.1 per cent that month, the largest decline in 30 years.

Job losses in the oil sector have led thousands of Albertans who used to make six-figure salaries seek out lower-paying jobs. With tens of thousands working shorter hours for less pay, Albertans are struggling with debt like never before.

Jeffrey Schwartz, executive director of Consolidated Credit Counselling Services of Canada (CCCSC), a non-profit that offers consumer advice on personal finance, said Alberta’s increase in consumer insolvency is a direct result of the downturn in the oil economy.

He said that Canadians from coast-to-cost are heavily indebted because they don’t live within their means. But Alberta’s dependence on fossil fuel revenue creates a special case for its residents.

“The nature of Alberta is that it can be looked upon as a boom and bust economy. I’ve seen at least three times in my life whereby they go up up up and then they go down,” Schwartz said. “By nature of their economy, they get caught in these increased insolvency patterns because of the boom and bust.”

National debt levels rising, Statistics Canada says

National debt levels are also on the rise. Statistics Canada found that Canada’s total household debt — from credit cards, mortgages and non-mortgage loans — hit $1.93-trillion earlier this year, a new national high.

According to Equifax Canada, Alberta also has the highest consumer debt load at $27,000, up 25 per cent from March 2015–16.

Director of the Master of Public Policy Program at the University of Calgary’s School of Public Policy Ron Kneebone said job loss, divorce, and unexpected disasters like the Fort McMurray wildfire are all likely catalysts for consumer insolvency.

But he said the number one problem is financial mismanagement.

“Really, this comes down to the fact that people get themselves into a situation of spending in excess of what they can afford given their income,” he said.

He drew parallels between the governments in energy-producing provinces like Alberta and the residents of those provinces who’ve experienced financial strife. He said government “behaved in the same high-risk manner that I think a lot of people did as well.”

They didn’t properly prepare, and didn’t have time to adjust to the shocking drop in oil prices.

“It’s also caught up in the fact that people in governments who rely on energy prices for either their revenue or for jobs, as far as the people go, they need to recognize that energy prices are extremely volatile,” Kneebone said. “To the extent that people failed to do that - and certainly the governments of those provinces failed to do it - so I can hardly blame people for having the same problem. They got caught.”

Spokeswoman for the Alberta Ministry of Finance Leah Holoiday said, as the province watched insolvency increase since January 2015, Albertans' have experienced financial hardship due to the drop in the price of oil. In a statement released to National Observer on Thursday, she said the Alberta Jobs Plan announced in the Alberta government's 2016 budget directly addresses that problem by "creating economic conditions to put 100,000 Albertans back to work."

"That includes a $34.8 billion investment into infrastructure, incentive programs to spur on job creation and growth and stabilized public services for Albertans at a time when they need it the most," Holoiday said in a statement.

Downsizing your lifestyle

CCCSC offered tips on how individuals affected by the downturn in the oil economy can better manage their debt. They advise paying more than the minimum payment on any debts, creating an effective budget, and “downsizing your lifestyle.”

People in Alberta are making far less overall than they did during the previous boom in oil prices. Since Canadians save only five per cent of their income on average, Schwartz said people have to restructure their spending accordingly.

“I think it’s critical because it’s almost like the more toys you have, the more you’re going to spend on a monthly basis,” Schwartz said. “Whether it’s maintaining those toys or insuring those toys, you’re going to have an increased amount of cash flow out.”

Consumer insolvency covers both bankruptcy and what is called a “consumer proposal.” All of an individuals debts are liquidated in a bankruptcy, while a consumer proposal sees an individual pay back a portion of their debt over a set period of time.

Both the creditor and the individual have to agree on the terms, but individuals wind up paying less than their total debt and avoid bankruptcy.

Schwartz said that since since consumer proposals allow individuals to keep their assets, people tend to choose that route over bankruptcy.

Editor’s note: this story has been updated to correct the title of Jeffrey Schwartz.