Über die Autorin bzw. den Autor

Katherine Porter is Professor of Law at the University of California Irvine School of Law. In 2010-2011, she was the Robert Braucher Visiting Professor at Harvard Law School. She is an expert in consumer credit law and has testified several times before Congress. Her published research addresses mortgage servicing, financial education, and consumer bankruptcy.

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BROKE

STANFORD UNIVERSITY PRESS

Contents

CHAPTER ONE Driven by Debt: Bankruptcy and Financial Failure in American Families Katherine Porter...............................1CHAPTER TWO A Vulnerable Middle Class: Bankruptcy and Class Status Elizabeth Warren and Deborah Thorne...........................25CHAPTER THREE Out of Balance? Financial Distress in U.S. Households Brian K. Bucks...............................................40CHAPTER FOUR Home Burdens: The High Costs of Homeownership Jerry Anthony.........................................................65CHAPTER FIVE College Lessons: The Financial Risks of Dropping Out Katherine Porter...............................................85CHAPTER SIX Striking Out on Their Own: The Self-Employed in Bankruptcy Robert M. Lawless.........................................101CHAPTER SEVEN No Forwarding Address: Losing Homes in Bankruptcy Marianne B. Culhane..............................................119CHAPTER EIGHT Women's Work, Women's Worry? Debt Management in Financially Distressed Families Deborah Thorne.....................136CHAPTER NINE The Do-It-Yourself Mirage: Complexity in the Bankruptcy System Angela Littwin.......................................157CHAPTER TEN Less Forgiven: Race and Chapter 13 Bankruptcy Dov Cohen and Robert M. Lawless........................................175CHAPTER ELEVEN Borrowing to the Brink: Consumer Debt in America Kevin T. Leicht..................................................195CHAPTER TWELVE The Middle Class at Risk Jacob S. Hacker..........................................................................218APPENDIX Methodology of the 2007 Consumer Bankruptcy Project Katherine Porter....................................................235Acknowledgments...................................................................................................................245Notes.............................................................................................................................247Bibliography......................................................................................................................273Contributor Biographies...........................................................................................................297Index.............................................................................................................................301

Chapter One

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 years. Some will save their houses and see bankruptcy as a miraculous cure. Others will suffer continued hardships, skid farther down the economic ladder, and view bankruptcy as a plea for help that went unanswered.

Nearly all of these families will remember their few minutes with the bankruptcy trustee as one of the most painful moments of their lives. Bankruptcy is a head-on encounter with promises to pay that cannot be honored and privations suffered trying fruitlessly to make ends meet. These families' aspirations of middle-class security evaporated under pressure from debt collectors. At least for now, their version of the American Dream has been replaced by a desperate hope that things do not get even worse. Driven by debt, these families are at rock bottom.

* * *

Anthropologist Katherine Newman asserts that there are no ceremonies to mark downward mobility. This is a stark contrast to the graduation ceremonies and housewarming parties that mark upward mobility. But meeting the bankruptcy trustee is exactly such a ceremony. It is a visible group experience characterized by a routine series of events that tangibly marks a decline in class status. Bankruptcy is a public declaration that a family has "fallen from grace," to borrow Newman's characterization of Americans who skid down the economic spectrum.

In the waiting rooms of bankruptcy trustees across the United States, in 2010 approximately 1.5 million families endured the bankruptcy ritual. Their experiences are evidence that some people lose the borrowing game that has become the American economy. Increased consumption was largely financed by debt, rather than by increases in wages or appreciation of assets. The consumer spending that drove the economy at the end of the twentieth century was not costless. It was bought and paid for with interest charges, late fees, increased stress about making ends meet, and sometimes, the humiliation of bankruptcy.

The debt loads that are commonplace among today's families would have been unthinkable a mere generation ago. The Great Recession that began in mid-2007 has widened the scope of the financial pain caused by overindebtedness, but the problem predated the large-scale economic meltdown that captured headlines. And all indicators are that consumer debt will be a defining feature of middle-class families in years to come. The "deleveraging" process of paying down debt and increasing savings has just begun. Along the way, more families will lose their homes or cars, trade off family time for second jobs, endure dunning from debt collectors, and slip farther down the economic ladder.

This book exposes the underbelly of consumer debt....