Posted on 09/25/2003 8:46:04 AM PDT by Baby Bear
There were over 1.6 million bankruptcy filings last year, up 7.4 percent from the previous year. And according to a new book, more people will end up in bankruptcy this year than will suffer a heart attack, than will be diagnosed with cancer or graduate from college, and it’s not who you would think. Elizabeth Warren is a Harvard law professor and bankruptcy expert and discusses these findings in her new book “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke.” She discusses the book on “Today.”
JUST THE WAY SHE PLANNED Ruth Ann smiles when she talks about the summer she was pregnant with Ellie. Those were the good days, when life was working out just the way she had planned. Dexter was five and learning to swim. Ruth Ann would pick him up from day care in the late afternoon, and the two of them would head for the town swimming pool. While Dexter thrashed about in the water, Ruth Ann would dangle her feet in the pool, waiting for her husband, James, to swing by on his way home from work. Dinners were late and haphazard, but no one cared. Ruth Ann’s life was exactly as she had wanted it, exactly as she had planned. And Ruth Ann was a planner. In college, she had majored in accounting. It was respectable and dependable, a little bit the way Ruth Ann saw herself. After graduation, she resisted the lure of Houston or Dallas and moved back to her hometown, Wylie, Texas, where she could live near her parents, get some experience doing payrolls and tax returns, and build up a little savings while waiting to begin what she always thought of as her “real life.” Real life began when she saw James Wilson, a friend from her high school days, who was managing a carpet and flooring store in Wylie. It was his hands, she would later say, his capable hands, the sure hands of a carpenter, that drew her to him. But it was something else as well. During her junior year at Texas Tech, Ruth Ann had broken off an engagement because she couldn’t shake the feeling that her intended was not the kind of guy she could count on. With James she felt she was marrying someone who would work as hard as she did to build a life together. When millions of mothers entered the workforce, they ratcheted up the price of a middle-class life for everyone, including families that wanted to keep Mom at home.
After a brief courtship, they married. A year later, in January 1994, Dexter was born. Ruth Ann was back at work in six weeks. Three years later, Ruth Ann and James took a deep collective breath and jumped. They bought their first home. It wasn’t the house of their dreams, but it was the house they thought they could afford. The roof needed to be replaced and the kitchen hadn’t been updated in fifty years, but the house had three nice-sized bedrooms, a big yard, and, most important, at $84,000 it was within the couple’s price range. Ruth Ann recalls the day they moved, a happy confusion of uncles and cousins carrying furniture, while Ruth Ann’s Aunt Ida set up a big picnic in the front yard of the new home to feed both the movers and the neighbors. That night, Ruth Ann sank down in the big old tub in the upstairs bathroom and let the joy run through her. Two years later, in September 1999, there was another cause for celebration: Ruth Ann gave birth to a little girl, Ellie. Nine weeks later, Ruth Ann returned to work and life settled down again. Then it happened. Just after the 1999 Christmas season, when Dexter was six and Ellie was five months old, James’s boss announced that he was closing the store. A national megastore had opened a few miles away, and its huge floor-covering department was sucking away business. To save on costs, layoffs were effective immediately. James was out of work in one day. James was frantic about finding another job. Like Ruth Ann, he didn’t want to disturb the life they had put together. But nothing came through that matched his previous salary. “After I lost my job I did odd jobs. Carpet cleaning, crazy stuff. I figured any work is better than no work.” Ruth Ann asked for extra hours at work, but her office was already overstaffed. Cutting back was hard to do because they weren’t really spenders in the first place. Most of their money went for the basics — the mortgage, car payments, day care, and food on the table. They hadn’t realized just how tight their budget really was until they missed a mortgage payment three months after James lost his job. Both had been raised to pay their bills, and as an accountant, Ruth Ann had seen what happened to people who didn’t. But they held on to the belief that their situation was temporary.
Within six months they were two payments behind on the mortgage. To raise cash, they had had two garage sales; then they sold the antique dining set that James had refinished. Ruth Ann quietly asked family and neighbors if she could prepare their tax returns for $50 apiece. As Ruth Ann and James learned, the dance of financial ruin starts slowly but picks up speed quickly, exhausting the dancers before it ends. Few families have substantial savings, so they usually run out of cash within a month or so. Soon the charges start mounting up for the basics of life — food, gasoline, and whatever else can go on “the card.” When there still isn’t enough to go around, the game of impossible choices begins. Pay the mortgage or keep the heat on? Cancel the car insurance or the health insurance? Meanwhile, interest and late fees have piled on, making everything more expensive. Ruth Ann and James got a small reprieve from family. James’s parents kicked in $4,000 and Ruth Ann’s brother lent them $1,500. But these temporary infusions of money were just that — they covered the minimum payments for a few months, but they didn’t begin to provide a way out of the hole. Before it was over, Ruth Ann had taken to parking the station wagon behind the elementary school and walking the six blocks home, figuring the bankers wouldn’t repossess her car if they couldn’t find it. A neat stack of manila folders on Ruth’s bedroom bureau told the story of how quickly their carefully planned lives had unraveled. The first folder held a letter from the county threatening to foreclose on their home for failure to pay taxes, along with past due notices from the mortgage company. Other files held a variety of bills totaling $12,000, and Ruth Ann’s carefully documented IOUs to their families. The end for Ruth Ann and James came with a bang. One evening Ruth Ann walked into the living room to hear Dexter, now seven, on the phone, talking to a bill collector. “My mom doesn’t do that, and you shouldn’t call here any more. Leave us alone.” When he heard her enter the room, he whirled around, his eyes wide. He slammed down the phone and ran out of the room. Ruth Ann wasn’t sure whether Dexter was afraid or angry, but she knew this had to stop. Ruth Ann was more financially sophisticated than most women. As an accountant, she knew that it was time to see a bankruptcy attorney. Filing for bankruptcy would give them some time to repay their bills, and it would prevent the bank from foreclosing on their home, at least for a few more months. It would also ensure that Dexter wouldn’t have to answer any more collection calls. That night Ruth Ann told her husband what they needed to do. James never said a word. He just walked out to his pickup truck, sat in the front seat, and cried.
ONE IN SEVEN Ruth Ann and James didn’t know anyone at their church or at work who couldn’t pay their utility bills or make their car payments, let alone someone in so much trouble they would have to file for bankruptcy. Or at least, that’s what they thought. In fact, Ruth Ann and James probably knew plenty of families who were in just as much trouble as they were. The odds were certainly in favor of it. Over the past generation, the number of American families who have found themselves in serious financial trouble has grown shockingly large. In a world in which our neighbors seem to be doing fine and the families on television never worry about money, it is hard to grasp the breadth or depth of financial distress sweeping through ordinary suburbs, small towns, and nice city neighborhoods. People like Ruth Ann and James, typical American families who are doing their best to make a good life for their children — working hard, paying their bills, and playing by the rules — lose it all when disaster strikes. Because they filed for bankruptcy in 2001 in northern Texas, Ruth Ann and James were among the 2,220 families interviewed as part of a Harvard University-based research project. One of us (Elizabeth) has been studying families in financial trouble since graduating from law school in 1976. I am a professor at Harvard Law School, where I teach the commercial law curriculum, which means that I specialize in the laws about debts and money. The other of us (Amelia) has an MBA from Wharton and a businessperson’s view of economics. We are both working mothers, representing two generations of families. And we have something else in common: We are mother and daughter. The idea behind this book took root in the spring of 1999, when Elizabeth was reviewing some preliminary data from an early phase of the Consumer Bankruptcy Project. I had begun to thumb through a stack of computer printouts to verify the accuracy of the sample. All the points were checking off fine, when my attention was suddenly drawn back to a single line on the page: the number of women in the sample. In 1981, about 69,000 women had filed for bankruptcy. The data on my printout indicated that by 1999 that figure had jumped to nearly 500,000 — an unimaginable leap. I guessed that the data had been entered wrong — maybe someone had added a couple of zeroes somewhere — or, worse still, our research team had somehow pulled way too many women into their sample, inadvertently producing a huge distortion in the numbers. Frustrated, I tossed the printout in the trash, assuming we would be forced to throw out months of work. The research team went back into the field for more data, initiating the 2001 Consumer Bankruptcy Project, which would evolve into the largest study ever conducted about families that had failed financially. I soon learned that there was something wrong, but it wasn’t the data sampling. In just twenty years, the number of women filing petitions for bankruptcy had, in reality, increased by 662 percent. As I soon discovered, divorced and single women weren’t the only ones in trouble; several hundred thousand married women filed for bankruptcy along with their husbands. Our research eventually unearthed one stunning fact. The families in the worst financial trouble are not the usual suspects. They are not the very young, tempted by the freedom of their first credit cards. They are not the elderly, trapped by failing bodies and declining savings accounts. And they are not a random assortment of Americans who lack the self-control to keep their spending in check. Rather, the people who consistently rank in the worst financial trouble are united by one surprising characteristic. They are parents with children at home. Having a child is now the single best predictor that a woman will end up in financial collapse. Consider a few facts. Our study showed that married couples with children are more than twice as likely to file for bankruptcy as their childless counterparts. A divorced woman raising a youngster is nearly three times more likely to file for bankruptcy than her single friend who never had children. Over the past generation, the signs of middle-class distress have continued to grow, in good times and in bad, in recession and in boom. If those trends persist, more than 5 million families with children will file for bankruptcy by the end of this decade. That would mean that across the country nearly one of every seven families with children would have declared itself flat broke, losers in the great American economic game. Bankruptcy has become deeply entrenched in American life. This year, more people will end up bankrupt than will suffer a heart attack. More adults will file for bankruptcy than will be diagnosed with cancer. More people will file for bankruptcy than will graduate from college. And, in an era when traditionalists decry the demise of the institution of marriage, Americans will file more petitions for bankruptcy than for divorce. Heart attacks. Cancer. College graduations. Divorce. These are markers in the lives of nearly every American family. And yet, we will soon have more friends and coworkers who have gone through bankruptcy than any one of these other life events. And the lines at the bankruptcy courts are not the only signs of financial distress. A family with children is now 75 percent more likely to be late on credit card payments than a family with no children. The number of car repossessions has doubled in just five years. Home foreclosures have more than tripled in less than 25 years, and families with children are now more likely than anyone else to lose the roof over their heads. Economists estimate that for every family that officially declares bankruptcy, there are seven more whose debt loads suggest that they should file for bankruptcy — if only they were more savvy about financial matters.
(Excerpt) Read more at msnbc.com ...
This article is just another attempt to obscrue the issue: it is the middle class that pay 60% of the taxes in this country, not "the rich."
With son Bush's re-election it is, "Where are the jobs? India!? China!?"
The old timers used to say, "Fool me once, shame on you! Fool me twice, shame on ME!"
Ruth Ann was more financially sophisticated than most women.
They are not the very young, tempted by the freedom of their first credit cards. They are not the elderly, trapped by failing bodies and declining savings accounts. And they are not a random assortment of Americans who lack the self-control to keep their spending in check.
They ran out of money three months after ONLY her husband lost his job? What about his unemployment? That really sounds financially sophisticated and it does sound like there was a severe financial discipline problem.
Note to young couples: 1. Your savings should cover 1 year minimum of expenses. 2. Drive a used Camry instead of a new Lexus SUV. 3. Cook at home, you don't need to eat out every night. 4. Credit cards are not free money; would you borrow money from the Mafia for 19% to get the latest clothing line from the GAP? 5..Don't cry to everyone because you failed to plan.
The American worker is now forced to pay for teenagers' babies, the elderly's medicine, and now our peers bankruptcies? Its nice to know my kids can't go to private school because you CHOSE to drive two new cars, go on vacation every year, and generally live beyond your means.
No. Neither are any dumbocRAT senators, representatives or any of their comardes in crime, i.e., the national media.
We don't have to worry about the national debt. Since we have hedged it with a BIG military those foreigners who hold our treasury bonds will have to WRITE IT OFF or go to war.
BUMP
You nailed it right there.
Yeah, some folks are spendthrifts and accumulate 30K in credit card debt. But look at the tax burden in 1960 v. 2003. Many factors play into this, but the tax bill can't be ignored.
Meanwhile, the root cause of the problem, gubmint, is offering "solutions".
Right.
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