Bankruptcy & the Middle Class
In the past bankruptcy has been thought of as something ‘poor’ people do. The reality is that it affects middle-class Americans more than any other group. And this has been exacerbated by the current economic meltdown. In fact, a study by a Harvard Law School professor was featured in USA Today. The study shows that more than 100,000 middle-class families declared bankruptcy in 2007. The middle class, it seems, can no longer rely on home ownership and a good job to protect them from financial ruin. The article says:
“A new study by Elizabeth Warren, Harvard Law School Leo Gottlieb professor of law, and Deborah Thorne, Ohio University
associate professor of sociology, finds that personal bankruptcy has become a largely middle-class phenomenon led by filers who are college-educated and owners of homes. According to the study, “The Vulnerable Middle Class: Bankruptcy and Class Status,” the shift occurred even before the Great Recession.
More than 100,000 middle-class families filed for personal bankruptcy every month in 2007, says the report, which was provided to USA TODAY but will be released in a book next year. Those who filed in 2007 were in worse financial shape than those who had filed in 2001.
“The bankruptcy filings are a warning about the risks now facing middle-class Americans,” says Warren, chair of the Congressional Oversight Panel on the Troubled Asset Relief Program (TARP). No longer can they count on a college education, a good job and homeownership to protect them from financial collapse.
“It’s horrifying for people who are not used to anything but an upward trajectory,” says Bob Anderson, a bankruptcy lawyer in Wilmington, N.C. “They are used to calling the shots.”
Schubert agrees.
“I’m a highly educated, middle-class woman,” says Schubert, who is the single parent of a 2-year-old son, Lincoln. “Until now, I have never in my life been unemployed.”
More filings ahead
In 2005, the bankruptcy law was changed to make it harder to file bankruptcy. After it took effect, filings dramatically dropped. But this year, filings are climbing and are expected to total 1.5 million, the level they were at before the tighter law took effect.
Warren and Thorne say their data show that the change in the law was not a scalpel that cut out only those deliberately not paying their bills. These days, it’s ordinary middle-class Americans, not a marginalized underclass or high-stakes gamblers, who are most apt to experience financial failure.
Poor savings habits, health problems and excess spending have traditionally been causes of bankruptcy. But the study finds that college education and homeownership, the traditional strategies for wealth building, may not be enough to guarantee financial security.
“As these time-honored wealth-building strategies become higher-risk undertakings, the middle class may face even greater economic instability in coming years, suggesting that in the modern economy, the path to prosperity may be far more perilous than anyone imagined,” the authors conclude.
The proportion of bankruptcy filers who have been to college, whether they dropped out or graduated, increased from 46.5% in 1991 to 58.9% in 2007, the study finds.
“The data was taken from the boom years,” Warren says, noting that it takes a long time to analyze and produce it. “I’m almost afraid to look at the data now.”
Instead of graduating from college with upward mobility, many Americans are overwhelmed with college debt and few job opportunities, according to the study.”
If you are one of the millions of Americans struggling, get help from the bankruptcy lawyer Knoxville relies on for relief. We can help you get back on your feet. Call today for a free consultation.
