For the past few years I’ve been suggesting bankruptcy more and more as a solution to people in trouble. I’ve written about my position, “I Suggest Bankruptcy Too Often, So Say Some“, and I receive my fair share of criticism about the amount of times I suggest bankruptcy.
An article out today, full of data, and experts I respect supports my observations and has observed the same phenomenon I have. The need for bankruptcy protection is spreading up the economic food chain.
Bankruptcy rates are skyrocketing again after the misguided and foolish bankruptcy reform of 2005. A reform I remind you that was allegedly aimed at stopping bankruptcy filings by people taking advantage of the ‘system’. There never were any such people. In the reform of 2005 banks and creditors simply bought themselves a new bankruptcy law they felt treated them more favorably. The end result, more consumers punished by making bankruptcy more expensive and cumbersome but the filings are right back to where they were.
“Carrying debt is like carrying a backpack full of bricks,” says James Doan, a bankruptcy attorney in San Clemente, Calif. “It weighs people down. They feel like failures. The are embarrassed and ashamed.”
Those words of James Doan from the story have always rung true, before and after the bankruptcy reform. They are emotions experienced by people facing money troubles today. There are just more of them.
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 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.
Middle-class families were encouraged to spend. But that often turned into a disaster when their bills increased and wages dwindled.
“My wife and I were great at lubricating the economy,” says Rock Macke, who lives with his wife and two children in Rancho Santa Margarita, Calif. “We loved to spend money, as is the middle-class thing to do.” Source“
And for the record, I have never suggested bankruptcy when a need did not exist for the protection and relief it offers. I am by nature a compassionate soul and always believe people deserve a second chance when faced with traumatic events.