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How over-indebtedness can arise Over-indebtedness can generally strike anyone. The cause of over-indebtedness is frequently the circumstance that there were not enough or no reserves built up for invoices that occur on a quarterly, semi-annual or annual basis such as taxes. You can read in detail about how over-indebtedness can arise in the following five case studies. |
1. Paying debts with debts
Newlyweds, Manuel, 29 years old, and Tanja, 27, together earn CHF 6,000 and spend an average of CHF 4,000 on living expenses.
Tanja, who is three-months pregnant, wants to buy a baby buggy, diaper-changing table and a baby bed. To do so, she asks her parents for a loan of CHF 3,000. Four months later, Tanja's parents ask her to pay back CHF 2,000 of her loan, because they want to install new kitchen furnishings. As they are also billed for taxes at the same time, Manuel and Tanja borrow CHF 6,000 from their friends. After giving birth, Tanja works in a restaurant and brings her daughter to a daycare center during the day. The young couple is not able to come up with the money for the daycare center, so Manuel's parents give them a loan of CHF 2,500. As a result of the exhausting work and stress with the infant, Tanja begins to suffer from psychological distress, to the effect that she soon loses her job. In the meantime, Manuel and Tanja have accumulated debts of close to CHF 8,000 and are constantly receiving inquiries from their friends and family as to when they will be able to pay back the money.
The couple decides to go to a debt counseling service. They and the counselor jointly set up a financial rescue plan so that they will be able to pay back their debts within a period of two years. Today, Manuel says: "The problem was that we had not created any reserves for children's items and taxes. In addition, we could have also gotten the baby buggy cheaper, for example, from friends or in a second-hand shop. We want to handle our investments with greater awareness in the future and set up a reserve account in order to provide us with security. That way, we will also be better prepared to deal with unforeseen circumstances."
2. From the apprenticeship into the debt trap
Thomas, 19 years old, has just finished his carpenter's apprenticeship and has a monthly disposable income of CHF 3,500. He still lives at home, for which he gives his mother CHF 300 as housekeeping money. He has additional expenses of CHF 250 for health insurance and CHF 800 for going out, clothing and personal items.
In August 2008, Thomas buys a second-hand Golf GTI for CHF 8,500. He had saved up half of this sum and borrowed the other half from his friends. Gasoline expenses, insurance premiums and additional costs of maintenance for the car result in additional expenses of approx. CHF 600 per month. In early October, Thomas moves into a 2-bedroom apartment with a rent of CHF 1,800 per month with his girlfriend. Thomas buys an LCD flat screen for CHF 1,900 and a set of furniture for CHF 1,300 for the new apartment, which he pays off in installments. After a party, Thomas drives home over-tired and scrapes against a guardrail. Thankfully, nothing happened to Thomas, but his car needs to be taken to a garage. He has no money available for the repair costs of CHF 4,500, which is why he doesn't react to the garage's requests for payment. After three months, the garage threatens to collect.
Thomas gets counseling at a debt counseling service, which works together with him to elaborate a financial rescue plan for paying off his debts. The new budget also takes account of reserves for vehicle maintenance and creditor payments. Thomas moves back home in order to pay off his debts and has the following to say about his situation: "I had thought that I could pay back my purchases with my salary. With the costs of repair that suddenly arose and the monthly rent, though, I got into a tailspin. I simply overestimated what I was able to do with my new salary. In the future, I will prepare a precise budget plan so that I always know the expenses I have to reckon with."
3. Financial ruin as a result of divorce
Peter Köppel, 35, has been married to Julia for nine years and is the father of two children. Peter works as a primary school teacher and makes CHF 6,300 a month, while Julia takes care of the household and the children. The Köppels rent a small house for CHF 1,700 per month. The additional costs amount to CHF 640 per month for health insurance premiums for the entire family and CHF 110 for car insurance, with living expenses being approx. CHF 2,250.
In April 2007, Julia and Peter buy a waterbed costing CHF 7,800, for which they sacrifice their financial reserves in their savings account. One and a half years later, they get divorced, and Peter's budget changes drastically. He pays the lawyer's fees for the divorce amounting to CHF 20,000 in monthly installments of CHF 600. There are additional costs of alimony payments of CHF 3,600 per month. After deducting the health insurance premium, auto insurance, reserves for taxes and lawyer fees, Peter doesn't have a dime left for living expenses.
In desperation, Peter turns to a budget counseling service, which negotiates a reduction of the installments with the lawyer. Peter has this to say: "True, I am relieved that the budget counseling service and I have found a solution together. On the other hand, I have come to see how important it is to have sufficient financial reserves. To suddenly be responsible for two households rather than one can throw you way off course."
4. Job gone – assets gone
Mr. Frick, 45 years old, is married and the father of three children. As a roofer, he earns CHF 5,500 per month, of which 2,000 are earmarked for the 4-bedroom apartment, CHF 700 for health insurance premiums and CHF 2,500 for living expenses for the family.
In late April 2008, Mr. Frick slips on the roof tiles and falls to the ground far below, thereby breaking his hips. He is declared unfit to work and loses his job. Despite insurance benefits and welfare benefits, he is unable to pay his unpaid tax liabilities totaling CHF 10,000. The tax authority ends up initiating collection, which results in Mr. Frick's assets being seized due to his insolvency. Twelve months after the seizure is carried out, the collection office issues him a loss certificate indicating the remaining debt (after deduction of the value of the seizure). In the meantime, Mr. Frick is receiving 50% invalidity pension and working part-time for a photocopying service so that he can pay off his remaining debts in small installments.
Today, Mr. Frick says: "When people become unemployed for unforeseen reasons, they frequently encounter difficulty meeting payment obligations. What is important is to seek a dialog with the creditors in order to find a solution jointly. Besides that, as an unemployed person, it is important to obtain information on possibilities of financial aid and, in case one does not fulfill the requirements for these benefits, to apply for public assistance."
5. How ignorance leads to over-indebtedness
José emigrated to Switzerland to provide financial support for his wife and two children in Portugal. The 44-year-old works as a panel beater and makes CHF 4,500 per month. His health insurance premium amounts to CHF 300, and he spends approx. CHF 2,500 monthly for his apartment and living expenses. He sends CHF 300 to his family in Portugal.
In August 2006, José's wife has an accident and needs to have surgery. José takes out a loan of CHF 2,000 with installments of CHF 100 in order to pay the costs of treatment and therapy. When his mother also falls ill with a heart condition at the end of the year, José no longer pays his installments in order to be able to finance the nursing home for his mother. When the bank calls and asks why he is no longer making payments, José tells them about his sick mother who is dependent on financial support. The bank directs José to a budget counseling service, which asks José to make a list of all of his income and expenditures for himself and his relatives. By drawing up the budget, it becomes evident that José pays too much for his health insurance.
In the meantime, José has his primary health care provided by a cheaper health insurer, to the effect that he can resume paying off his loan. Looking back, José has this to say: "I try to manage my money properly, but I didn't know that you could save a lot of money when selecting your health insurer. I am glad that the budget counseling service showed me where I can make savings and how I can get my budget under control again. For example, I use the bank's automatic payment service to make the installment payments to the creditors. That way, I always know how much money I have available each month."
The names of the persons referred to under "Field Reports" were changed for reasons of data protection.
Newlyweds, Manuel, 29 years old, and Tanja, 27, together earn CHF 6,000 and spend an average of CHF 4,000 on living expenses.
Tanja, who is three-months pregnant, wants to buy a baby buggy, diaper-changing table and a baby bed. To do so, she asks her parents for a loan of CHF 3,000. Four months later, Tanja's parents ask her to pay back CHF 2,000 of her loan, because they want to install new kitchen furnishings. As they are also billed for taxes at the same time, Manuel and Tanja borrow CHF 6,000 from their friends. After giving birth, Tanja works in a restaurant and brings her daughter to a daycare center during the day. The young couple is not able to come up with the money for the daycare center, so Manuel's parents give them a loan of CHF 2,500. As a result of the exhausting work and stress with the infant, Tanja begins to suffer from psychological distress, to the effect that she soon loses her job. In the meantime, Manuel and Tanja have accumulated debts of close to CHF 8,000 and are constantly receiving inquiries from their friends and family as to when they will be able to pay back the money.
The couple decides to go to a debt counseling service. They and the counselor jointly set up a financial rescue plan so that they will be able to pay back their debts within a period of two years. Today, Manuel says: "The problem was that we had not created any reserves for children's items and taxes. In addition, we could have also gotten the baby buggy cheaper, for example, from friends or in a second-hand shop. We want to handle our investments with greater awareness in the future and set up a reserve account in order to provide us with security. That way, we will also be better prepared to deal with unforeseen circumstances."
2. From the apprenticeship into the debt trap
Thomas, 19 years old, has just finished his carpenter's apprenticeship and has a monthly disposable income of CHF 3,500. He still lives at home, for which he gives his mother CHF 300 as housekeeping money. He has additional expenses of CHF 250 for health insurance and CHF 800 for going out, clothing and personal items.
In August 2008, Thomas buys a second-hand Golf GTI for CHF 8,500. He had saved up half of this sum and borrowed the other half from his friends. Gasoline expenses, insurance premiums and additional costs of maintenance for the car result in additional expenses of approx. CHF 600 per month. In early October, Thomas moves into a 2-bedroom apartment with a rent of CHF 1,800 per month with his girlfriend. Thomas buys an LCD flat screen for CHF 1,900 and a set of furniture for CHF 1,300 for the new apartment, which he pays off in installments. After a party, Thomas drives home over-tired and scrapes against a guardrail. Thankfully, nothing happened to Thomas, but his car needs to be taken to a garage. He has no money available for the repair costs of CHF 4,500, which is why he doesn't react to the garage's requests for payment. After three months, the garage threatens to collect.
Thomas gets counseling at a debt counseling service, which works together with him to elaborate a financial rescue plan for paying off his debts. The new budget also takes account of reserves for vehicle maintenance and creditor payments. Thomas moves back home in order to pay off his debts and has the following to say about his situation: "I had thought that I could pay back my purchases with my salary. With the costs of repair that suddenly arose and the monthly rent, though, I got into a tailspin. I simply overestimated what I was able to do with my new salary. In the future, I will prepare a precise budget plan so that I always know the expenses I have to reckon with."
3. Financial ruin as a result of divorce
Peter Köppel, 35, has been married to Julia for nine years and is the father of two children. Peter works as a primary school teacher and makes CHF 6,300 a month, while Julia takes care of the household and the children. The Köppels rent a small house for CHF 1,700 per month. The additional costs amount to CHF 640 per month for health insurance premiums for the entire family and CHF 110 for car insurance, with living expenses being approx. CHF 2,250.
In April 2007, Julia and Peter buy a waterbed costing CHF 7,800, for which they sacrifice their financial reserves in their savings account. One and a half years later, they get divorced, and Peter's budget changes drastically. He pays the lawyer's fees for the divorce amounting to CHF 20,000 in monthly installments of CHF 600. There are additional costs of alimony payments of CHF 3,600 per month. After deducting the health insurance premium, auto insurance, reserves for taxes and lawyer fees, Peter doesn't have a dime left for living expenses.
In desperation, Peter turns to a budget counseling service, which negotiates a reduction of the installments with the lawyer. Peter has this to say: "True, I am relieved that the budget counseling service and I have found a solution together. On the other hand, I have come to see how important it is to have sufficient financial reserves. To suddenly be responsible for two households rather than one can throw you way off course."
4. Job gone – assets gone
Mr. Frick, 45 years old, is married and the father of three children. As a roofer, he earns CHF 5,500 per month, of which 2,000 are earmarked for the 4-bedroom apartment, CHF 700 for health insurance premiums and CHF 2,500 for living expenses for the family.
In late April 2008, Mr. Frick slips on the roof tiles and falls to the ground far below, thereby breaking his hips. He is declared unfit to work and loses his job. Despite insurance benefits and welfare benefits, he is unable to pay his unpaid tax liabilities totaling CHF 10,000. The tax authority ends up initiating collection, which results in Mr. Frick's assets being seized due to his insolvency. Twelve months after the seizure is carried out, the collection office issues him a loss certificate indicating the remaining debt (after deduction of the value of the seizure). In the meantime, Mr. Frick is receiving 50% invalidity pension and working part-time for a photocopying service so that he can pay off his remaining debts in small installments.
Today, Mr. Frick says: "When people become unemployed for unforeseen reasons, they frequently encounter difficulty meeting payment obligations. What is important is to seek a dialog with the creditors in order to find a solution jointly. Besides that, as an unemployed person, it is important to obtain information on possibilities of financial aid and, in case one does not fulfill the requirements for these benefits, to apply for public assistance."
5. How ignorance leads to over-indebtedness
José emigrated to Switzerland to provide financial support for his wife and two children in Portugal. The 44-year-old works as a panel beater and makes CHF 4,500 per month. His health insurance premium amounts to CHF 300, and he spends approx. CHF 2,500 monthly for his apartment and living expenses. He sends CHF 300 to his family in Portugal.
In August 2006, José's wife has an accident and needs to have surgery. José takes out a loan of CHF 2,000 with installments of CHF 100 in order to pay the costs of treatment and therapy. When his mother also falls ill with a heart condition at the end of the year, José no longer pays his installments in order to be able to finance the nursing home for his mother. When the bank calls and asks why he is no longer making payments, José tells them about his sick mother who is dependent on financial support. The bank directs José to a budget counseling service, which asks José to make a list of all of his income and expenditures for himself and his relatives. By drawing up the budget, it becomes evident that José pays too much for his health insurance.
In the meantime, José has his primary health care provided by a cheaper health insurer, to the effect that he can resume paying off his loan. Looking back, José has this to say: "I try to manage my money properly, but I didn't know that you could save a lot of money when selecting your health insurer. I am glad that the budget counseling service showed me where I can make savings and how I can get my budget under control again. For example, I use the bank's automatic payment service to make the installment payments to the creditors. That way, I always know how much money I have available each month."
The names of the persons referred to under "Field Reports" were changed for reasons of data protection.
