House of cards
Our exclusive report shows British Columbians are drowning in debt. Take our quiz to see if you need to seek professional help.
Dave Malicki discovered his dark side as he plunged into a hellhole of debt.
The good friend, loving father and respected lawyer showed a flair for denial, counter-attack and wilful ignorance.
Many people thrashing in debt try to consolidate their loans. Malicki de-consolidated.
He divided his borrowing. He borrowed from his mom so he could fly to see his daughters in England, from his girlfriend to cover his rent, from a lawyer friend to cover his law society fee.
“I was in such a state of denial that when my girlfriend or family member would bring it up, I would turn on them and say that they didn’t have any faith in me,” he says. “It was a horrible, horrible thing.”
It grew worse. He fell behind in child support payments and feared he might not be able to borrow money to fly to see his children.
When his debts swelled to $85,000, his girlfriend and his accountant convinced him to get help. Ashamed and guilty, one eye twitching with anxiety, he dragged himself into a bankruptcy trustee.
A few hours later, he had filed for bankruptcy. A euphoria washed over him that has yet to completely fade, seven years later.
“I was walking on air,” he says. “I had tears of joy and relief.”
A growing number of B.C. residents are running this emotional gauntlet. Beset by stagnant incomes and rising prices, B.C. posted a 42 per cent increase in people going bust over the past four years — far higher than the 11-per-cent national increase.
It’s little wonder insolvencies are surging: B.C. has the most heavily indebted population in the country. The average B.C. consumer has $37,879 in consumer (nonmortgage) debt. That’s 40 per cent higher than the national average.
People suffer through hell before they file for bankruptcy or make a consumer proposal, suggests a new study by Sands & Associates, the province’s largest bankruptcy trustee. Sands releases the report Monday.
Sands’ survey of 7,000 debtors in the Lower Mainland found that 76 per cent were in rough emotional shape before they finally come to the firm for help. Their finances got so bad they feared they would never get out of debt.
“It’s a massive number walking around with no real sense of hope or optimism about their financial future,” Sands senior vice-president Blair Mantin says.
“It affects them mentally, physically and it affects their relationships,” Mantin says.
“I’ve seen people with physical ailments brought on by stress — stomach ulcers, depression, heart attacks, panic attacks and even suicidal behaviour.”
People often make things worse — emotionally and financially — by trying to fix things themselves, Mantin suggests.
Fifty-four per cent of Lower Mainland residents try to resolve their financial challenges themselves before seeking help from a trustee, according to the Sands survey.
From anecdotal evidence, the firm has found there is a “gestation period” typically lasting up to two years when people overwhelmed with debt know they need help but don’t seek it, Mantin says.
When people wait so long their debt becomes unmanageable, consumer proposals — a less severe alternative to bankruptcy — are no longer an option.
“People often come to see a trustee as a last resort, when credit is turned off and they can no longer borrow from one card to pay another,” Mantin says. “They come in and say ‘I regret that I didn’t know about these options sooner. All I’ve done over the last two years is tread water.’”
Frantic people make decisions that will compromise their future, Mantin says. One of the worst is cashing in RRSPs.
For one thing, only the last 12 months of RRSP contributions need be surrendered in a bankruptcy. And those who sacrifice an RRSP without learning to live within a budget are not facing the underlying issue, Mantin says.
“Unless they’re forced to make a behavioural change, I often find they’re in the same position a year or two later,” he says. “They’ve dealt with the short-term debt but haven’t solved the budget problem so they run their debts up again.”
And then there are people who try to beat down debts by creating “austerity budgets,” Mantin says.
“It amazes me sometimes how little they spend on food and how much they continue to pay in interest and finance charges,” he says. “These budgets are unrealistic and difficult to survive on but sometimes it will go on for years.”
Part of the reluctance to see a bankruptcy trustee stems from a perceived stigma attached to bankruptcy.
Mantin says that perception is understandable but that people are too hard on themselves.
“They’re not morally bad people,” he says. “Do you think Air Canada was horrible because it had to go through bankruptcy to emerge stronger on the other side?”
The Sands study delivers one of its most surprising results by asking why people sink into debt. Almost 45 per cent of those questioned cited over-extension of credit, financial mismanagement and unexpected expenses for getting into a financial jam.
About 24 per cent said it was job-related and 18 per cent cited marital or relationship breakdown.
Only 0.9 percent blamed their predicament on mortgage over-extension.
“You hear that people being over-extended with their mortgages is a big cause of financial difficulties,” Mantin says. “The study proves that’s a very small cause.”
A strong majority of people find bankruptcy or a proposal a life-restoring experience, according to the Sands study. Eighty per cent of those who took either step report that their financial future looks bright and stress-free.
Malicki, 46, is a beacon of hope for those who fear they will never rehabilitate themselves and emerge from the darkness of debt to a better life. He closely tracks all his costs. A renter and house-sitter, he has cut his spending to the point he only works in law halftime.
The rest of the time he works with children, and does paid and unpaid work outdoors. Next month, he flies to Tanzania for three months to help build a secondary school with a Vancouver-based charity.
“While I’m gone the child-support cheques will be sent out and all my obligations will be met,” he says.
Malicki offers three bits of guidance to people in a financial jam. The first is to talk to an expert — and do it now.
“Write down what you spend. By becoming aware of where your money goes your spending habits will change.”
His third piece of advice is reserved exclusively for people whose self-esteem has taken a hit — which is to say, almost every debtor out there.
“Forgive yourself once a day. Maybe twice.”