519-646-2222You Can’t have your Cake and Eat it!
As Grandma used to say, “you can’t have your cake and eat it.” In all the years I’ve worked in the insolvency industry, I have never met a single person who planned to go bankrupt or file a proposal. On the other hand, I have met plenty of people who, when faced with bankruptcy, will try all kinds of things to preserve the lifestyle they have become accustomed to.
Most people are naturally afraid of change. Change is distressing, upsetting, and anxiety-provoking—no one wants to face those challenges. For people drowning in debt, it’s no different. They ask questions like, “How will I buy groceries if I don’t have access to credit?” or “Where will we live if we have to sell the house?” They worry about being unable to pay for a car without access to a line of credit to make the payments.
The real problem isn’t the loss of access to debt—it’s the way debt is pushed onto people by institutional lenders. Second-tier lenders and payday loan companies are more expensive but far less aggressive in their sales tactics. Banks, on the other hand, actively push debt on customers they know cannot afford to repay. Ironically, second-tier lenders, or lenders of last resort, don’t need to push debt at all; people seek them out simply to avoid seeing someone like me.
Pride is another reason people acquire debt. I’ve had debtors tell me, “I have a great credit rating,” as if it were a badge of honor. Many feel compelled to keep up appearances, pulling out credit cards at restaurants with friends, secretly hoping someone else will step in and pay the bill. But when faced with the inevitability of bankruptcy it is time for a paradigm shift, a reassessment of values.
Debt is rarely talked about openly. People will brag about what they own, but not about what they owe. They will easily share the most intimate details of their personal lives before admitting the reality of their debt. Drive through an upscale neighborhood and you’ll see million-dollar homes with $4,000 mortgage payments, two cars in the driveway with $900 monthly payments each, families sending kids to expensive sports programs, entertainment bills of $1,200 a month, a motorcycle with $500 monthly payments, and a boat with a similar obligation.
The cost of this lifestyle is staggering and realistically beyond the reach of all but the top 1% of Canadian income earners. I am reminded of the 1999 movie “The Sixth Sense” where the young boy tells his psychologist “I see dead people” – when I drive through these neighbourhoods “I see indebted people“.
Yet, the more debt these households have, the more lenders are willing to advance. I often muse that when a bankrupt individual is required to attend a discharge hearing, their banker should be required to attend as well. The banker should provide a thorough explanation of why they kept lending money when it was obvious the debtor had no ability to repay. Perhaps bankers should be made to cover the trustee and court fees—or even provide restitution to the debtor they helped drive into financial ruin. But that’s just a thought—don’t hold your breath.
When the chips are down, try to view the change as an opportunity rather than a loss, it is a chance to reorder priorities, focus on relationships over bragging rights, get rid of expensive obligations and embrace living within your means. Some people are able to see through the curtain of debt and as they let go of assets, they could never really afford, they feel a sense of liberation, freedom.
There is much to be said for living a simple, lower-cost, and less stressful lifestyle. You should try it.