Ever heard the saying “Keeping up with the Joneses?” The Joneses have a fancy house and a Porsche in the driveway. You want to have what they have – but what the Joneses likely also have, is something that you can’t see and don’t want — debt!
My grandfather was a farmer. My mother used to wonder why the farm next door always had fancy, shiny, new machinery. My grandfather would respond, “A farmer with fancy new machinery, is a farmer with debt.”
Of course, it is possible that the neighbors, in both instances, worked hard and saved up in order to buy those luxury items. (Particularly pre-1950 when the first credit card came out). However, the point I am trying to make is that you don’t know by appearances just who has financial difficulty.
There is a misconception that people who file for Bankruptcy are destitute; eating at food banks and shopping at second hand stores. This is not usually the case. In order to have debt, you must have credit. In order to have credit, you must apply and have an income to support the application.
That means that most people who file an Assignment in Bankruptcy or a Consumer Proposal are people who have enjoyed a good standard of living, and then had some problem enter their life. Now they can no longer maintain the debt level that they previously carried.
Who files for Bankruptcy? You may be surprised. In this podcast Jillian Taylor-Mancusi talks about her experience working with clients and what you can expect when you book an appointment with a Licensed Insolvency Trustee.
When Do People Find Themselves With Too Much Debt?
It is when you are unable to pay your debt that you look for relief such as a Bankruptcy or a Consumer Proposal. There are a number of reasons that people find themselves in this situation. These reasons can include everything from marriage break up, to health problems, to loss of a job, to addictions, to just not being good with money.
People with debt do not look any different than you or your neighbors. In fact, it is possible your neighbors are in debt. According to the most recently published Canadian Consumer Debtor Profile, the average age of a debtor is 47 years of age. 38% are married, while 22% are divorced or separated. 4.6 people out of every 1,000 in Canada file for insolvency each year.
The top five reasons for financial difficulty are loss of income (37%), medical reasons (23%), relationship breakdown (15%), business failure (7%) and tax debts (6%). Anyone you know could be insolvent.
How Much Debt Is Too Much?
The amount of debt people can carry can also be surprising. In order to file an Assignment in Bankruptcy, technically you only need to owe $1,000 and be insolvent; which means that you are unable to pay your debts as they become due. That could easily mean every other person walking down the street.
Most people can come up with a plan to pay back $1,000; but could they pay back $10,000 or $100,000 or even $1,000,000? Some people can manage owing $100,000 with a plan to pay the amount back. But other people are unable to manage owing $10,000. How much debt one can carry is really up to the individual, their income, family size, and commitments.
The fact that we all know that expression about keeping up with the ‘Joneses’ means that we live in a society that strives for material goods. That often results in us comparing ourselves to our neighbors. Sometimes to keep up with the Joneses, people are working two or even three jobs. Working that much can cause other problems like poor health, family problems or income tax debt at the end of the year. In the long run, that can result in insolvency.
How Does Debt Accumulate?
One simple fact to keep in mind is that, for most people, debt accumulates slowly over time. Many people with good incomes find themselves living just a bit over their income level. Perhaps they leave that excess on their credit card. In the short term that is easy to recover from, but if it continues long term, the debt will accumulate – with compound interest! In other cases, some catastrophic event occurs – illness, divorce, loss of job – and the debt that the family could afford previously now becomes unmanageable.
Whatever the reason, once the debt becomes unmanageable and it starts to affect your family and your health, it is time to meet with the Licensed Insolvency Trustee to get some advice on how to deal with it. These experienced professionals can help you find a solution that works for your unique situation.
Who Goes Bankrupt?
In short, anyone can become insolvent, for many different reasons. Likely you have friends and neighbours who have used the services of a Licensed Insolvency Trustee, and you never knew. Insolvency is not something that we wear on our sleeves. It is personal, and confidential. If you need help, contact LCTaylor and begin to explore your options.
There is nothing wrong with wanting the best for your family, and even being a bit competitive with friends and neighbours. That’s human nature. But the next time you find yourself comparing your situation with someone else’s, remember that you may not want everything the “Joneses” have, particularly not their debt.
Jillian Taylor-Mancusi, LIT
