The number of Ottawa consumers declaring bankruptcy hit a new record in 2004.

Industry Canada says 2,101 consumers filed for bankruptcy last year, a 3.6 per cent increase from 2003. The rate of increase in the number of bankruptcies has slowed. It jumped 17 per cent between 2002 and 2003.

In December, 136 consumers filed for bankruptcy and 20 businesses threw in the towel.

Local bankruptcy lawyer Stanley Kershman of Perley-Robertson says the increase is almost on par with the rate of population growth. But he warns the numbers will climb dramatically if interest rates and borrowing costs spike.

"As soon as rates head up, the numbers will increase a lot," he says.

Kershman says consumers may be managing their debt well in the current interest rate climate, but few have considered what will happen to their monthly mortgage payment or car loan increases. He says consumers should prepare for higher rates by building a cushion into their monthly budgets. If rates stay low, he advises consumers to use the extra money they've set aside to pay down their debts.

He also warns that the first three months of the year usually see a jump in consumer bankruptcies as the results of holiday over-spending become apparent.

The number of business bankruptcies in Ottawa last year fell slightly, to 184 from 192 in 2003.

Kershman says more businesses are making proposals to their creditors that allow them to continue operations, and low rates are helping companies cope with their carrying costs. He also says consumers are spending, and that is also helping businesses back to good health.

For the country as a whole, 84,426 consumers and 8,128 businesses declared bankruptcy in 2004.