Steeped in debt: Good times end, spending doesn't
seattletimes.nwsource.com
By Shirleen Holt
Seattle Times business reporter
TOM REESE / THE SEATTLE TIMES
Tamara Chomenko-Cicero, at home in Mukilteo, says, "Nothing on the face of the planet can prepare you for the loss of a job." She is back on her feet after finding a new job, filing for bankruptcy and marrying.
Michael Ealem had been working for a local Internet company eight months when he got laid off earlier this year. It was his fourth pink slip in two years.
Fed up and neck-deep in debt, he delivered a parting comment to his boss: "Do you have any idea what this is going to do to me?"
Four months later, the 44-year-old computer programmer still is unemployed and wondering how he's going to pay off more than $40,000 in loans and credit cards.
Ealem isn't the only worker who rode Washington's economy from the top to the bottom and ended up in financial distress.
Unexpected job loss, badly timed expenses — or in some cases, reckless spending — have plunged many once highly paid workers deeply into debt.
In Washington, personal bankruptcies rose 20 percent in 2001, and there are few signs that things have slowed this year. It's possible that some cases were filed in anticipation of tougher bankruptcy rules, now stalled in Congress, but there are other signs borrowers are in crisis.
Home foreclosures have nearly doubled in the past two years, from .58 percent in the first quarter of 2000 to 1.04 percent two years later, according to the Mortgage Brokers Association.
The debt clinic offering free help by the King County Bar Association is serving so many people it has boosted its stable of volunteer lawyers from three a night to five.
They handle typical cases — such as low-income families staving off aggressive creditors — but they're also seeing more laid-off workers who are living off their credit cards, said program manager Cathie Caldwell.
One computer engineer from South King County, who earned up to $125,000 annually before losing his job last October, says he has racked up more than $70,000 in credit-card debt in the past year.
A chunk went to pay for an unexpected expense for his family of three, the rest to pay the bills, including the minimums on credit cards. The engineer, who asked not to be identified, put his home on the market and sold his two cars. But he worries his family's fragile finances will collapse if he doesn't get a full-time job soon.
"We're bleeding cash at the rate of about $2,000 monthly," he says.
Recent Chapter 7 bankruptcy filings (which basically erases credit-card debt and allows filers to keep their cars and homes) illustrate how bad things got for some, whether it was living beyond their means, losing a job or being hit with unexpected medical bills:
• A Boeing production worker earning $48,000 a year owed $78,000 for credit cards, car loans, back rent and back taxes.
• A former Boeing worker who lost his job in the layoffs had debt of $93,658, most of it from credit cards.
• An unemployed software engineer from Redmond (an occupation that typically pays from $70,000 to $120,000 annually) had charged $136,277 on his credit cards.
• A merchandise manager from Everett earning $61,000 a year racked up $21,500 in medical bills that he couldn't pay.
A Lynnwood bankruptcy lawyer, Denice Patrick, works with dot-com refugees, laid-off Boeing workers (at least one a day) and others who once made well above the area's average $43,000 annual household income.
When they lost their jobs, those once manageable credit-card balances became overwhelming.
"If you've got a $1,500 mortgage payment, how much do you have left over after you buy food, pay utilities and make your car payment?" Patrick said.
Credit Catch-22s
Few people were willing to talk publicly about their finances or about going deeply into debt, but Ealem says he didn't spend lavishly. Yet like many computer programmers who thought their skills would always be in demand, he didn't save much, either.
He owes on his student loans from the University of Texas and balances on credit cards he's had since college.
"I've got a carton of milk on there that I got back in Houston in 1986," he quips.
Seattle's economy was buoyant when he decided to move to Washington in the summer of 2000.
The software company that hired him (Ealem won't name the companies he's worked for, citing clauses in his contracts that limit what he can say about them) offered a good salary and 20,000 shares in stock options.
What moving expenses the company didn't cover, Ealem charged on credit cards. He racked up more charges on an extended-stay motel in Bellevue until he and his then-wife, an administrative assistant, moved into a $1,600-a-month rental house.
Four months after he was hired, Ealem lost his job.
"All of the sudden we went from $120,000 to $40,000."
Ealem quickly got a job at another software company and his wife lost her job. In the next 18 months, Ealem would be laid off twice more, go through a divorce, and charge more moving expenses, this time for a $900-a-month studio apartment in Kirkland.
He lost his last job June 14.
Today, he can no longer afford his apartment but he can't afford to leave it, either.
"It's the Catch-22s that get you. It takes two of my unemployment checks to pay my rent. In order to get out of this lease, it would cost me $800, which is more than I have on hand at any one time."
He also can't sell his 1995 Volvo until he can come up with $700 for repairs. Feeling guilty about driving a car about to be repossessed (he's behind on the $367 monthly payments), he now takes the bus.
He ignores calls with "I.D. Unknown"; they may be creditors. His television long gone, he now watches episodes of "Buffy the Vampire Slayer" at a friend's house. He has no health insurance.
He's applied for all sorts of jobs — bookstores, a supermarket — but he doesn't hold out much hope that he'll be hired. "They're going to take one look at me and go 'Pfft, this guy is going to be gone as a soon as another job opens up.' "
He thought about going back to school, but he earned too much last year to qualify for student loans. The one option Ealem won't consider is bankruptcy. "I want to pay off these bills. I'm no deadbeat."
Spending continues
Unlike past recessions when consumers tightened their belts, many people have continued their spending patterns throughout this downturn. This is helping the economy, but it also is contributing to a dramatic rise in credit-card debt.
Today the average credit-card balance is $8,562, compared with an $2,985 average in 1990, according to the National Foundation for Credit Counseling.
More significantly, the percentage of a household's disposable income that goes to paying that debt rose from 16 percent in the early 1990s to 22 percent today.
Even in Washington, where the unemployment rate is at 7.2 percent (second in the nation behind Alaska's 7.3 percent) and companies are churning out pink slips at an alarming rate, the consumption continues.
"They buy boats, they buy cars, they buy houses. Buying, buying, buying," says Mike Alderson, chief executive of Smart Solutions, a Seattle credit-counseling agency.
"It's 'Oh, I'll get a $100,000 job. I'll get the money.' And then it's not there."
The results of giddy spending turn up in bankruptcy filings for Chapter 7.
One man, a sales liquidator from Snohomish County, claimed an astounding $1 million in liabilities, including unpaid notes on two 2000 Mercedes-Benzes.
A man from Mukilteo who listed his occupation as a salesman amassed more than $250,000 in charges with 26 credit cards.
Until recently, few people worried about paying off their credit cards and car loans. The economy was booming and median household incomes in Washington were growing, from $44,562 in 1997 to $46,007 in 2000. It wasn't until 2001 that the figure dropped to $43,101, pushed downward by the slumps in aerospace, telecommunications and technology.
"These are folks who had good income, were highly skilled, and all of the sudden the world just collapsed on them," says Michael Staten, director of Georgetown University's Credit Research Center. "There was really no reason for them to expect unemployment."
'Robbing Peter to pay Paul'
Tamara Chomenko-Cicero never thought she'd lose her $65,000-a-year job as a technical trainer with Primus Knowledge Solutions in Seattle.
She took the job in August 2000 because it seemed more stable than her contract arrangement with Boeing, where she also was a technical trainer.
A 35-year-old single mother, she lived with her two children in a home in Stanwood and drove a BMW 535i.
When the company laid her off eight months later, Chomenko-Cicero's comfortable income vanished. She got child support and unemployment insurance, but it wasn't enough to cover basic household expenses of $2,500 a month. She also had to make payments on her student loans and credit cards she'd run up while on business travel.
Soon, she was using those credit cards for household necessities, but she couldn't afford the minimum payments.
"I was robbing Peter to pay Paul. It got to the point where I was trying to put my utility bills on there, too."
She tapped her relatives and fiancé for money, something she found humiliating. Then she'd lay in bed at night and worry, conjuring up ideas to get herself out of this jam. "I'll do anything," she recalls thinking. "I'll waitress. I'll go hold up a bank."
The bottom came when her fiancé (now husband, John Cicero) drove her home one afternoon. She looked in the driveway and gasped.
"I said, 'Oh my god. The car is gone!' "
Her BMW had been repossessed.
Tired of a financial struggle that had lasted nearly a year, Chomenko-Cicero filed Chapter 7 in March.
She has since found a job with an established law firm, Davis Wright Tremaine, in Seattle, and she's rebuilding her finances. They don't include the biweekly manicures or $255 color and cuts she used to get at the beauty salon.
But she also has little patience with those who would criticize her for getting into such a mess.
"You hear that saying, 'Put a little away for a rainy day.' But nothing on the face of the planet can prepare you for the loss of a job or the whole change of your world. Nothing."
Shirleen Holt: 206-464-8316 or sholt@seattletimes.com.
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