Toxic Assets – The Family Home and Credit
By: Douglas P. Welbanks – Guest Blogger

Wikipedia defines toxic assets as “a nontechnical term used to describe certain financial assets when their value has fallen significantly and when there is no longer a functioning market for these assets, so that they cannot be reasonably sold.’’
Great media attention has been placed on toxic assets. So much so they have assumed the inflated role of causing the financial collapse in the US and the global recession. It is somewhat baffling that hardly anything has been said about the millions of debtors who are stuck up to their depreciated assets in what may be appropriately described as toxic debt.

One reason for this may be the focus on investor losses, high risk bonds, overzealous peculation, and the gratuitous lending practices of a wide spectrum of financial institutions (including Canadian banks) that brought the toxic realities of debt to the forefront. Something urgent had to be done to prevent the collapse of the American financial system. Generous rescue packages for lenders and a long list of financial groups were legislated and duly presented to the wounded financial giants of American finance, including General Motors and Chrysler. Occasionally, some faint reference could be heard about people, real wage-earners with families, losing their homes and how something should be done ‘to help these poor people.’

The spectre of families losing their homes is frightening. A family home normally qualifies as the largest and most significant family asset of all. Purchasing a home has a long historical past as a fundamental financial planning concept. Statistics Canada reported in a 2006 that the single most important asset for Canadians was their principal residence, which accounted for one-third of the $5.6-trillion total. The prospect of losing this central family asset contradicts the philosophy, the great promise of the ownership of private property for middle and lower income groups. The family home is at the centre of their financial universe and it is no less catastrophic for their world to collapse due to forces beyond their control, ability to plan for and ultimately to recover from.

When the credit crunch first arrived in the US in 2008 a cavalier attitude was prevalent with many commentators and pundits. They criticized and ridiculed the stupid lenders who lent to all of these unworthy, tainted borrowers who should never have been lent the money to start with.

Soon after, ‘toxic assets’ became a convenient label used to leave the less than favourable impression that this was some sort of rare disease that government should fix. If you were a lender and had a toxic asset, you should try and get rid of it. Meanwhile, very little was said about job loss, the mass devaluation of middle class families’ single biggest asset, or that the wage-earning debtor was not stupid or financially irresponsible.

Today, the casualties of a deep, global recession are more conspicuous, particularly with respect to job loss in the auto sector and how this will effect a co-mingled network of numerous, subsidiary business interests. However, only their status as workers is highlighted. Very little is said about their role as debtors.
Over the last thirty-five years it has become commonplace to avoid public attention to debtors and the consistent, unstoppable dependency of individuals and families upon credit. In Canada individuals and families have been sinking into a troublesome morass of debt for the last 35 years as the following chart illustrates:
Consumer Credit – (excluding Mortgages) Statistics as reported by the Bank of Canada:

1975 – $23 – billion
1985 – $58 -billion
1990 – $98 -billion
1995 – $116-billion
2000 -$187-billion
March 2009 $ 416- Billion

There is much more than a mortgage payment on the list of family bills. It’s not quite so simple to narrow everything down to toxic assets either.

In the same report in 2005 Statistics Canada categorized the debt loads/increases of Canadians as follows:

Between 1999 and 2005 –

Total debt in Canada increased by 47.5%. This was largely due to two factors: the increase in the cost of purchasing a home and the increase in the proportion of families who owned a home with a mortgage. The second largest contributor to the increase in debt load was lines of credit, at $68 billion. About 3.3 million families, one-quarter (24.9%) of the total, reported having a line of credit debt in 2005, up from only 15.4% in 1999.

Families reported holding about $46 billion in loans on owned vehicles, a 41.3% increase $25.8 billion in outstanding credit card and instalment debt, up 58.4%.

Student loans approached $20 billion, a 15.8% increase. Almost 11 million families reported owning at least one credit card in 2005. Lenders have been lending more and more credit and borrowers have been going further and further into debt each and every year, in Canada, since the 1970s. There has been something deeper than a mercurial stock market – especially for middle and lower income consumers – individuals and families.

It may be more accurate to see the recession as a culmination of events and that the undue reliance on credit, in its many forms, has been tenuous at best.

The recent announcement by the government of Canada to give consumers a 21 day grace period before charging interest, when the balance is paid in full, falls in to the category of ‘slightly better than nothing’ but it completely overlooks the financial realities of real individuals and families struggling to make ends meet today – not to mention the millions hanging on the cliff of predictable job loss, corporate reorganizations and bankruptcy.

Not capping or regulating the actual interest rates reaffirms this unspoken, unforgiving attitude to debtors. It ignores the sacrosanct status of charge card interest rates – in some cases the rate of 28% per year has remained untouched for the last 35 years – even now when the Bank of Canada’s rate is almost zero at 0.25% for its overnight rate. There doesn’t seem to be any relief for pre-existing debt and debtors – all $416 Billion of it.

For those facing financial adversity, what is most needed is compassion and a much better understanding of the realities of personal finance – especially from the federal and provincial governments. Debt is a huge part of the family economic pie. We cannot shrug our shoulders or pretend that all of the bankruptcies are caused by toxic assets or some temporary, international, economic blip creating job losses. Similarly, it is equally sinister to ignore the pain and suffering of hard working and honest individuals and families and the inescapable losses of the accumulated family wealth of millions of people over, in many cases, a lifetime – such as the family home or the RRSPs that have been cashed to meet family expenses and pay creditors prior to reaching a state of absolute destitution.

John Kenneth Galbraith drew attention in The New Industrial State to the abandonment of profit maximization for modern corporations in favour of stability and predictability. Perhaps it’s time to revisit such principles, especially with respect to interest rates and a recession that has the potential to devastate the middle and lower income groups.

This is a time for compassion for the less fortunate and vulnerable and an opportunity to take preventative steps to mitigate the losses, for both lenders and consumers.

This would be an excellent period to redefine the enemy. Is it the debtor?

Governments need to look beyond a debtor-creditor contract and see real people with families and children. People should not be swept away from public attention under the ominous veil of a bankruptcy. Instead, there needs to be more creativity and flexibility with interest rate reductions for honest individuals and families caught in the recessionary malaise; moratoriums on monthly payments and interest for both mortgages and consumer loans, where appropriate; and the overall willingness to help their customers, co-operate with proposals and be reminded that bankruptcy is a tragedy, the final step in the debt collection process.

Douglas Welbanks is the former Director of Debtor Assistance and Debt Collection for British Columbia, author and director on the board of the Debtor Assistance Society, a newly formed non-profit service scheduled to open in August 2009 that has been designed to help individuals and families with long and short term debt problems through education and workshops.He can be reached at 604-951-4357, toll free at 1-866-860-0909 or by email –;

Independent Credit Counsellors work for you while respecting your creditors! E-mail
It’s your financial future don’t settle for less! Choosing your credit counsellor Recently, Canada has seen an influx of large American companies. These “not-for-profit” operations have been investigated by American authorities with results that question their desire to help, rather than hinder the consumer. We are 100% Canadian owned our offices and staff are located right here, in Canada. All of our counsellors are highly trained debt professionals and licensed by the Provincial Government for your protection.Insist on having a Canadian credit counsellor help you with your debt problems – someone that truly understands the credit industry in Canada. Work with us at Solutions Credit Counselling Service Inc.™ . We are trusted by Canadian consumers and have earned the respect of your creditors.

We understand the selection of your credit counsellor is critically important, as one requires a caring, professional organization, which will strongly advocate their client’s position in every area, such as education, debt management, debt reduction and personal advice, all delivered in a timely manner.

All legitimate credit counsellors are licensed in the province in which they are based, and must provide a bond or surety to safeguard funds held in their trust account on behalf of clients. These trust accounts are audited annually for provincial government agencies. It is critical for your protection to ensure that your credit counsellor is duly licensed.

Choosing your credit counsellorBefore accepting services, consider your needs carefully. Do you need an agency that will represent only you to your creditors? Do you need an agency that will provide you with budgetary suggestions, and a strenuous review of your situation?

All of these matters must be thoughtfully measured. As well, you should review the form of credit counsellor you will retain. Basically, there are two “types” of agencies, so called “non-profit” and “independent”. The former is funded in large part by the very creditors that you owe the money to. Funded by way of a programme known as “fairshare” which is a commission-based structure, while the “independent”  agency Solutions acts only for, and is funded solely by its clients.

Ideally, your credit counsellor will be a member of a professional association such as the Canadian Association of Independent Credit Counselling Agencies, which requires high standards of conduct from its members.

In summary, ensure that your credit counsellor provides you with information that is tailored to your needs and is given strictly on your behalf, is properly licensed and audited annually.

Solutions Credit Counselling Service Inc™ is an independent Canadian agency that you can trust and meets all of the requirements listed above. Contact us if you are experiencing financial difficulty we will help!

1. First, pull a credit check on you. In most cases you can obtain your own credit bureau report free of charge by contacting the credit bureaus or visit CREDIT SOLUTIONS to print off an application:

   There are three credit bureaus in Canada:

Equifax: toll free at 1-800-465-7166 or you may purchase your credit bureau file online at EQUIFAX

Trans Union: toll free at 1-800-888-4213 or you may purchase your credit bureau file online at TRANSUNION

Experian Canada: toll free at 1-888-826-1718 or you may purchase one online at EXPERIAN

In order to be sure all of your information is correct and current you will need to get copies of all your files. Yes, that means you will have to contact each credit bureau!

 2. Review your credit report. Once you receive your file review it very carefully for any errors or omissions. Did you know? Surveys advise us forty seven percent of the time the information contained in a credit report is wrong? However, no one knows the information is wrong until someone actually reads the file and can verify the information.  So, read your file once a year to be sure the reporting information about you is correct.

 3. Correcting wrong information. Accompanying your file the credit bureaus will provide you with information regarding how to correct or update any wrong information. You may need to have the credit bureau contact the creditor to get undated information. It is the responsibility of the credit grantor to send correct information to the credit bureaus for reporting. So if there is an error follow the instructions carefully and you will be able to correct your own file.


4. Pay off debt: Even if your credit report states that you have made all your payments on time all the time, a potential lender may refuse to lend you more money due to the amount of debt you are currently carrying.  It is best to pay off as much of your existing debt as possible before applying for another loan.

 5. If you have more debt than you can repay: Your credit rating will improve by dealing with your current debts. You may need to speak with a licensed credit counsellor to get professional advice in order to look at what solutions are available.

 No matter what anyone tells you, you can not erase bad credit from your file if the information on the file is correct it will remain for the allotted time frames. However do not despair; any credit information good or bad will report on your credit file for a maximum of 6 years and then drop off. The exception to this rule is Court Judgments which can report for a maximum of 10 years if they remain unpaid. 

Unique to British Columbia after six years if the debt has not had a payment or been acknowledged in writing the debt is extinguished. You no longer owe the money!! This does not seem however to apply to Government Debts. I am wondering when someone will take this one on and ask the courts if the law should apply.Maybe it will be you!

So what are you waiting for? Get a copy of your credit report today and start repairing your credit rating.