I live in Canada, I am 50 and have been self-employed for most of my life. One day, in 2000, Revenue Canada (the Canadian IRS) contacted me asking why I had not filed an income tax return or, indeed, paid ANY income taxes for the previous 15 years. I did not have a good answer for them.
Long story short, by my own calculation I owed the government well over $75,000 in unpaid taxes and penalties. Over the next decade, I attempted to co-operate with them by getting up-to-date with tax filings. I even sent them a few thousand dollars here and there when I could afford it, but the situation was far from getting resolved. Plus I kept falling behind filing my tax returns.
This put me in a category known as “habitual non-filer,” and Revenue Canada doesn’t take kindly to us folk. Eventually they were successful at getting a judgement against me and garnisheeing my wages at 50 percent of net (after tax, I was forced to send 80 percent of my income directly to Revenue Canada). By this point the debt plus penalties had climbed to over $200,000.
This was one year ago, and my financial life went into a death spiral. Although my present income is good, I was supporting my husband through school and it was simply impossible to make ends meet. Plus I had probably about $30,000 in credit card debt, the payments on which I had to default on.
I pleaded with Revenue Canada to reduce the garnishment to a manageable level. They refused.
According to a trustee I spoke to, I should go bankrupt immediately. The hitch was, I would need to get completely up to date with my tax filings to do so. Since I could not afford to hire somebody to do this, I spent a good chunk of last summer filing 5 years’ worth of tax returns on my own behalf in a kind of desperate race to stop the garnishment and restore my paycheque.
Obviously I was never any good at filing tax returns. Especially the complicated self-employed ones. This was how I got into trouble in the first place! So it was not easy to face this challenge, but somehow I managed to do it. In that process, I discovered a lot about myself, which probably sounds strange, but it’s true.
For years I had been living beyond my means. Not in extravagant ways, but in small and persistent ways over years and years. Being self-employed meant I would go through periods of unemployment. But instead of seeking to broaden my opportunities for work, I lived off the money I should have paid in taxes. And when that ran out, credit cards. I don’t see this as particularly immoral, but it is definitely boneheaded. And this easy availability of cash through those years made it easy to sweep the problem under the rug while continuing to exacerbate it. “Those are nice shoes, why don’t I just buy them,” et cetera.
All of which finally led me finally to the collapse of last year. I didn’t realize it at the time, but Revenue Canada did me a favour driving me into bankruptcy. I never would have done it on my own. I think I felt it was somehow shameful or way too extreme. I certainly couldn’t imagine what it would be like to live without credit, and hadn’t wanted to find out.
But now that I’m bankrupt I see only good things. Not only am I finally up to date on tax filings, I will neverfall behind again—nor will I allow myself to go into unmanageable debt ever again. It’s just too traumatic an experience. Plus, upon discharge, I will be free of debt! Eventually I will want credit again, but me and credit need some time off for now.
Today I am exactly one year into a bankruptcy period that is set for discharge next March or so. Under the terms, I will have paid by that time a portion of my income back to creditors amounting to about 20% of what was owed. This period has imposed on me considerable austerity requirements, but it is a far cry from the financial chaos I had brought on myself before. Most importantly, the austerity has taught me how to live within, or even below, my means, which has been the most valuable lesson of all.
I know the above makes me sound like some kind of neo-liberal drinker of austerity Kool-Aid, but I do think a little austerity can be a good thing—it has certainly taught me a lot. The tragedy in the Eurozone periphery is that the austerity is ideological, draconian and feeds into feelings of hopelessness because there is no end in sight.
For me, there is an end in sight—next March! I look forward to what I know will be a much better played second act.