An Eternal Optimist

Early in my career as a Licensed Insolvency Trustee, I was interviewing a gentleman who had declared personal bankruptcy. His financial statement indicated that he was indebted to the tune of several million dollars. His house and automobile were fully encumbered and he had no free assets. His income was sufficient to cover his family expenses, but he had no extra income or any other assets with which to cover any of his debts. He had indicated to me that the root of his insolvency came down to personal guarantees of the debts of a corporation that was insolvent and placed into receivership. Intrigued by the situation, I began to question him further regarding his situation and he provided me with the following scenario.

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He began by telling me that he had been a successful manager of several businesses. Because of his success, he was approached by a group of physicians who owned a medical clinic and retail mall. After several meetings, they persuaded him to accept the appointment of business manager of their corporation. As condition of his employment, he was required to sign personal guarantees of the corporate debts of this company. Prior to this appointment, this gentleman had been completely debt-free.

After managing the corporation for a few months, he came to the realization that the officers of the corporation had not been totally up front with him and that they had hidden the fact that the business was in deep financial trouble. He tried to manage the company out of debt but despite his best efforts, eventually the company had to be placed in receivership. The directors of the company, medical doctors, declared themselves bankrupt and moved to the United States where they could earn higher incomes and get themselves back on track financially. He was left holding the bag, as it were.

Since then, more than five years ago, he had endeavoured daily to produce enough income to pay off several million dollars in debt and avoid bankruptcy. It was obvious to me that it would have been impossible for him to even cover the interest on such a debt, let alone pay off some of the principal.

I asked him to explain the rationale behind his decision to put off declaring personal bankruptcy during all those years. He explained that he was the president of the local Optimist Club. The members of this club believe that anything is possible if you put your mind to it. He could not conceive that he could fail financially this way and had concentrated all his efforts during those years to work extra hours, to take a second job, to have his family scrimp and save to pay off his debts. He believed in the power of positive thinking and could not accept defeat.

At this point in our discussion, I asked him what advice he would give to anyone who was in the middle of a financial predicament like his. He said he would not hesitate one second to recommend personal bankruptcy. I asked him to explain to me how a person such as himself, with his experience and knowledge, could fathom paying off such a debt.

He explained that fear of failure and false pride had blinded him and that, for an extended period, he thought he could accomplish an impossible feat. His emotions prevented him from making a reasonable assessment of whether or not he would actually be able to pay off his debts.

This is an extreme example, but so often as debt professionals, we encounter people who put off making rational decisions regarding their financial challenges because of emotions. If you are experiencing financial difficulty, and can set aside any emotional bias preventing you from being able to make a rational decision in a timely manner, you will save both yourself and your household from significant stress and anguish. The power of positive thinking and optimism can only get you so far. When it comes to the overwhelming and unmanageable debt, realism is the best policy.