These days, it’s ordinary middle-class Americans, not a marginalized underclass or high-stakes gamblers, who are most apt to experience financial failure.
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.
“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 home ownership to protect them from financial collapse.
At age 40 and with such accomplishments, Schubert is Middle Class America. She and those like her have long been the nation’s backbone, because their steady jobs and purchasing power have helped drive our economy.
But Middle Class America has two faces, a new study shows. Schubert is that other Middle Class America, too.
After earning $275,000 annually, Schubert used most of her savings to start her business in 2003. The earliest days of the recession in 2007 slowed sales, and she fell behind on business and personal bills. Credit card debt reached $65,000.
She tried to find a full-time job without much luck, because the job market was saturated. Temporary freelance design work couldn’t cover her bills.
So last year, she filed for Chapter 7 bankruptcy along nearly 1.1 million other individuals.
“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.”
“I graduated from a top art design school in the country,” she says of the Rhode Island School of Design. “Opportunities always came.”
After filing for bankruptcy, Schubert hasn’t found a full-time job but has been doing freelance design work. She says she has designed a new handbag line and is looking for investors to help recharge her business.
Home ownership, like higher education, guarantees little, the study finds.
“For decades the middle class counted on homes as an economic lifeboat,” Warren says. With a fixed-rate mortgage and a home that appreciated in value, families had a financial nest egg they could rely upon.
Now, homes are sinking families instead of stabilizing them, as home values plummet. When Diane and Nicholas Spano of Long Island, N.Y., ran into financial problems, they thought that the home they have owned for 29 years could save them.
Diane had a kidney transplant, and Nicholas temporarily couldn’t work at the post office because of a back problem. Diane went back to work at a drug and alcohol center, but it closed.
They applied for a home-equity loan, without realizing that there was no way they could afford the payments. House payments totaled $3,200 a month, and Diane had $200 a month in medical bills.
This summer the couple, who are both 66, filed for Chapter 7 bankruptcy.
“I feel bad,” she says. “But if we had not filed for bankruptcy, I don’t know where we’d be.”
The home went into foreclosure, but the Spanos are trying to work out a loan modification. Diane is working part time at CVS; Nicholas has retired.
And plummeting home values are impacting not only homeowners but also many others who work in the housing industry. Builders, roofers, concrete workers, real estate agents and mortgage lenders are among bankruptcy filers now.
If this article resonates with you because you yourself are a member of the American middle class who is struggling with serious debt problems, and you have questions about how filing bankruptcy would affect your specific situation, I’m happy to offer you a FREE telephone consultation during which I’ll answer all of your questions. Just complete the “Contact Dan” form on the right side of this page, click the “Submit” button, and I’ll get right back with you. Or simply pick up the phone and call me at 918-615-8260. I look forward to hearing from you.
Source: USA Today
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