Why Didn’t I Do This a Year Ago?

  • By Leigh Taylor

Insolvencies are increasing — Should you be concerned?

You may have heard that the insolvency rates in Canada are up and you’re thinking that means the economy is in the tank. Not necessarily so. Insolvency is not a bellwether. It is not an indicator of how the economy is going in general but rather how the economy was two years ago.

The few research papers that have been done on insolvency all seem to agree that, for personal bankruptcies, the causes of the bankruptcy occurred almost two years before the individual actually went bankrupt. These causes are varied. They might have a root in something happening in the economy, like increased unemployment, higher interest rates, or the closure of plants and mines. More commonly, though, they are personal problems — things like marriage break-ups, loss of one income in the family, health problems, etc. When these problems strike, a debt load that was manageable before may eventually become unbearable.

Why does it take so long for people to solve their financial problems?

The answer is understandable. People try their best to recover from the problem on their own. Let’s look at the loss of a job. After losing their job, most people start looking for a new job almost immediately. At first, everyone is optimistic. That new job is just around the corner.  They don’t make drastic changes to their lifestyle, expecting to be back at work soon. They may have some savings set aside, and they use that, or they make more extensive use of their credit cards to “tide them over”. That makes sense. It’s what most of us would do. However, as time goes on and the job still hasn’t been found, more drastic changes are needed, but by then the credit cards are maxed out, and the debt is no longer manageable. To make matters worse, when they do get back to work, they may need to accept a lower starting salary or fewer hours.  That can require further belt-tightening.

In a  marriage break-up, both parties are generally left with half the family income, but often 100% of the debt (a fact of life with joint debts), and 100% of living costs. Legal fees seem manageable at first, but they pile up, and the creditors won’t wait forever to be paid.  Some people can take on a second job or use their savings. Those are good short term solutions, but when the savings run out and the second job becomes just too much, the debt is often still there. It may be quite some time before they realize that they can’t get out of the situation by themselves.

Health problems are much the same. Here, a second job is rarely possible. When one member of the family is seriously ill, the care for that person takes a toll on the time and energy available to remaining family members. That, in turn, makes working a second job very difficult. Using up savings, and maxing out credit cards, perhaps selling some assets, can delay the inevitable, but eventually, the debts become unmanageable and help must be sought.

When is the best time to seek advice about debt problems?

If you don’t want to ask yourself, “Why didn’t I do this sooner?” the very best time to seek advice is shortly after the initial problem occurs. That is, right after you lose the job, the marriage breaks up, or the illness is diagnosed. Informed consumers make the best decisions, and seeking advice before there is an unmanageable problem will give you the widest range of options for dealing with the debt.  For example, if there is potentially a Bankruptcy in your future, it would be better NOT to cash in that RRSP to tide you over, since the RRSP would survive the bankruptcy, and provide you with long term financial security. Dealing with unmanageable debt takes its toll on our health and our relationships. It is always best to find a solution as soon as possible.

Who should I go to for advice?

Many people with debt problems don’t seek help because of a fear of the unknown, others because they don’t know whom to talk to, and many because of simple inertia. The best people to consult with about debt are Licensed Insolvency Trustees (LIT’s), such as LCTaylor. Of all financial professionals, LIT’s have the widest range of experience and the most extensive training in this field. Most Licensed Insolvency Trustees offer free initial assessments, providing a great opportunity to find out answers at no cost.

Remember: the sooner you seek professional help, the more likely it is that there will be a variety of options available for you to pursue.

Clearly it is better to find out what you have to do to get back on your financial feet, rather than suffer through months of stress and strain, and in the end say, “Why didn’t I do this a year ago?”

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