Broke: How Debt Bankrupts the Middle Class

Broke: How Debt Bankrupts the Middle Class

Broke: How Debt Bankrupts the Middle Class

Broke: How Debt Bankrupts the Middle Class

Synopsis

About 1.5 million households filed bankruptcy in the last year, making bankruptcy as common as college graduation and divorce. The recession has pushed more and more families into financial collapse- with unemployment, declines in retirement wealth, and falling house values destabilizing the American middle class. Broke explores the consequences of this unprecedented growth in consumer debt and shows how excessive borrowing undermines the prosperity of middle class America.

While the recession that began in mid-2007 has widened the scope of the financial pain caused by overindebtedness, the problem predated that large-scale economic meltdown. And by all indicators, consumer debt will be a defining feature of middle-class families for years to come. The staples of middle-class life- going to college, buying a house, starting a small business- carry with them more financial risk than ever before, requiring more borrowing and new riskier forms of borrowing. This book reveals the people behind the statistics, looking closely at how people get to the point of serious financial distress, the hardships of dealing with overwhelming debt, and the difficulty of righting one's financial life. In telling the stories of financial failures, this book exposes an all-too-real part of middle-class life that is often lost in the success stories that dominate the American economic narrative.

Authored by experts in several disciplines, including economics, law, political science, psychology, and sociology, Broke presents analyses from an original, proprietary data set of unprecedented scope and detail, the 2007 Consumer Bankruptcy Project. Topics include class status, home ownership, educational attainment, impacts of self-employment, gender differences, economic security, and the emotional costs of bankruptcy. The book makes judicious use of illustrations to present key findings and concludes with a discussion of the implications of the data for contemporary policy debates.

Excerpt

Katherine Porter

The waiting room is ordinary enough—lined with rows of simple metal chairs and barren of decoration other than a government poster of rules and regulations. The people in the room are ordinary too. They wear jeans and work boots, simple sun dresses and sandals, khaki pants and button-down shirts, or uniforms from retail stores. A few navigate into the room with a walker, and others try to find a space to accommodate a baby stroller. The room could be a local Social Security office or a parking permit bureau, just another pedestrian pause in daily life, but its atmosphere is the giveaway. Rather than the heavy stickiness of boredom, the room is filled with quiet anxiety. Conversations are hushed and brief. Many people twist their hands or study their shoes. The scene is like the waiting area in an emergency room, and for good reason.

This is the room where people wait to be diagnosed with a financial emergency—bankruptcy. The bankruptcy trustee calls people inside a small examination room and quickly reviews their debts, assets, income, and expenses. The trustee asks few questions; it’s an easy diagnosis of flat broke in most cases. The need for these families to have legal help with their debts is obvious from their bankruptcy court records. Credit card debts, medical debts, and other unsecured debts typically total more than an entire year of the family’s current income, and more than half of them are behind on their mortgage or car payments, facing foreclosure or repossession. Satisfied in most instances that the family qualifies for bankruptcy relief, the bankruptcy trustee sends husbands and wives, mothers and fathers, widows and young singles back to work or home.

As they leave the trustee’s office, most people ask their attorney, “What’s next?” They have typically struggled seriously with their debts for the previous one to two years. In fact, many households spent months simply scraping together the money and paperwork needed to file a bankruptcy petition. Most are skeptical that their problems just ended. What comes next in bankruptcy varies with people’s circumstances. Some will receive a discharge of their debts in a few weeks, while others will struggle to repay creditors for . . .

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