By Robert Muller
USTI NAD LABEM, Czech Republic (Reuters) - Olga Petikova first borrowed a few hundred dollars in the 1990s to furnish her young family's apartment. Later, she turned to payday loans to make ends meet as her husband struggled to make his new business a success. The debt soared.
Two decades on, she owes 2 million crowns ($86,938), 11 times her annual income, and is subject to 15 seizure orders on her property and much of the money reaching her bank account.
Her case is not uncommon in the Czech Republic, now the richest of the European Union's ex-communist countries.
People in the same situation often work in the black market to avoid having to declare income that will be forfeited to repay their debts, aggravating a labor shortage cited by nearly two-thirds of companies as an obstacle to growth.
Similar "debt traps" -- the result of poor financial awareness, years of loose regulation of lenders, costly repossessions and tough laws on bankruptcy -- also help fuel support for extremist politicians in poorer areas.
Even small debts like unpaid fines or utility bills can grow into sums many can never repay. "I just tell my children to never do like I did," Petikova told Reuters.
She now has a stable job but most of her salary goes on debt repayments. She gets by with help from her now-adult children.
At the end of 2017, 863,000 Czechs -- nearly 10 percent of the adult population -- faced at least one seizure order, meaning their income above a legal minimum can be redirected to cover debts and fees. Half of them faced four or more orders.
A total 4.67 million of seizure orders were outstanding, including for companies, for debts with a face value of 239 billion crowns ($10.8 billion) -- nearly 5 percent of GDP.
In neighboring Germany, whose population is eight times larger, there were 2.48 million seizure orders, official data shows.
Seizures in Slovakia, with only half the Czech population, were even higher, at 3.76 million in late 2017, but personal bankruptcies had cut that to 2.89 million a year later.
A recent survey showed some 60 percent of Czech companies see lack of skilled workers as an obstacle to growth, compared to a European average of 42 percent.
While prospective workers are unwilling to labor for no gain, the paperwork required to employ a person with a seizure order is also a burden on companies, said Eva Velickova, a spokeswoman for the Czech Confederation of Industry.
"The indebtedness of people is a problem for both society and the economy," Velickova said.
The tough Czech approach to debtors is rooted in the country's transformation from communism.
Laws to encourage private enterprise adopted in the early 2000s made it easier for creditors to get their money back by paying a repossession agent to collect the debt.
Agents' fees were once so lucrative that some offered to pay more than 100 percent of nominal value for hard-to-recover small debts, according to Daniel Hule of People in Need, a human rights group that focuses domestically on social exclusion.
(For a graphic on 'Czech seizure orders on the rise' click https://tmsnrt.rs/2RFxGCM)
"We let the law be bent against society, in favor of various interest groups. That is the main problem," Hule said. "Rather than (the Czech) population being delinquent, it is a relic of a bad system."
Fees are lower now, but a standard seizure procedure can quickly transform a debt of around 1,000 crowns -- the fine for riding public transport without a ticket -- into about 10,500 crowns, according to a calculator on People In Need's website http://www.vymahacikalkulacka.cz.
In Germany, the equivalent figure would be about 3,900 crowns.
(For a graphic on 'Cost of Czech debts' click https://tmsnrt.rs/2RNiXFG)
OUT OF THE LABOR MARKET
Seizure of income can leave debtors with as little as 6,225 crowns ($273.23) per month, a quarter of the average net wage for a single person. Half of seizures are for debts of 10,000 crowns or less.
This can be boosted by welfare payments but those are lost as income rises -- taking away any incentive to earn more. A 2016 study for the human rights minister said tens of thousands of people were working only illegally due to account seizures.
"Debtors lose motivation not just to work harder, but to work at all, they often drift to the grey economy," said Ladislav Mincic, chief analyst at the Czech Chamber of Commerce. "In the border regions, many of them flee out of the country in order to avoid seizure orders."
With unemployment at a two-decade low of 2.8 percent, there were just 193,000 available workers for 324,000 job vacancies in November.
The harsh treatment of debtors has often fueled support in poor areas for far-right and far-left political parties. Usti nad Labem region, near the German border, where 18 percent of the population have seizure orders, is the Communist party's electoral stronghold.
"Extreme parties get (votes) from those around who see the higher crime rate, money leaving the region and a poorer offer of services. This is all connected to the seizure orders," said Daniel Prokop, a sociologist at the Median polling agency.
Debt problems even burden thousands of children, according to People in Need, who helped 15-year-old orphan Lidka take her case to the Constitutional Court.
Lidka, who gave only her first name when speaking to Reuters in Pilsen, said she had owed 40,000 crowns from twice being caught on public transport without a ticket -- aged six and 11. The court ruled in 2017 that she must pay the original fare and the fine -- around 2,000 crowns.
BANKRUPTCIES NOT EASY REMEDY
A move by authorities to license non-bank lenders has seen nearly 90 percent withdraw from the market. About 85 remain.
About 20,000 people a year apply for personal bankruptcy in the hope of escaping their debts.
But rules are tough: for bankruptcy to be declared, a debtor must prove they can pay at least 30 percent of what they owe within five years. That can now be waived by the courts, but only retroactively after five years.
In Germany and Slovakia, there is no threshold.
Ludmila Krivkova, 42, owes 850,000 crowns from 14 loans taken out over five years.
One of the companies she used, Pujcka7, advertises a 14-day loan of 5,000 crowns which turns into a 5,946 crown repayment -- an annual debt servicing cost of 9,064 percent, according to a calculation on the lender's website. Pujcka7 did not respond to requests for comment.
"I took a loan to refurbish our daughters' room, then also to buy food. And then the circle started, paying a loan with another loan," she said in her flat in Usti.
People in Need helped Ludmila file for personal bankruptcy. After five years, she will be out of trouble -- as long as she keeps paying 6,200 crowns each month towards her debts.
That leaves 5,000 crowns for her family. Thanks to social benefits and alimony, she manages.
"There used to be enforcers, calls from hidden phone numbers, letters," said Ludmila. "That is over... It is quiet now."