Oil patch money troubles going to get worse

Consumer insolvencies have jumped in provinces affected by the energy sector downturn and could keep going up, says the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).

Bankruptcies and consumer proposals in Alberta rose by 24.6% between February 2015 and February 2016, reports the Office of the Superintendent of Bankruptcy (OSB). That compares to a 2.8% rise a year earlier.

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Similar increases were also recorded in Saskatchewan (18.2%) and Newfoundland and Labrador (22%). The Atlantic province has its own oil and gas industry and is home to many workers who travel west to work.

“We are only just now getting the statistics for February and certainly my experience here in south Saskatchewan is that we have been steadily getting busier since January,” says Ian Schofield, CAIRP Board Secretary and a Saskatchewan Licensed Insolvency Trustee.

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While rates in other provinces remained relatively low – even declining in Ontario by 1.3% from February 2015 to February 2016 – the impact of the oil price downturn has been dramatic in provinces where oil and gas are produced.

Canada’s energy sector employed about 300,000 workers in 2014, according to Natural Resources Canada. But the petroleum industry has lost an estimated 40,000 jobs over the past two years, and such massive cuts inevitably leave some laid-off workers without the means to make monthly payments. When an industry loses jobs in an economy that doesn’t have a lot of diversity, insolvencies rise.

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“I have found over the past thirty-plus years that even if the economy starts turning around, insolvency filings generally increase for some considerable time as individuals clear up the debt hangover […] from having lost their previous jobs,” says Schofield.

“I think it’s going to get significantly worse before it gets better.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.