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The Fragile Middle Class: Americans in Debt

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This book discuss the reasons in the increase number of bankrutptcy filings within the last decade. The '90s was a time of great prosperity. Huge technological changes came by. In many ways our community life seems easier with advance in medicine, transportation, communication and the Internet. But reality is very confusing as you read "The Fragile Middle Class". Real average income decreased. A higher family income was reached due to the fact that, like never before, there was more than one income in the household. Even with this additional income, many families can barely make it. Consumer debt is rising, more so after a divorce, unexpected medical expenses, job instability and the purchase of a home at any cost. American society has experienced a negative income, collectively people are not saving money. Only the richest 20 percent of the American population has had a real income increase during the last two decades. The use of credit was increasingly easier. Meanwhile the industrial sector dealt with inflation reducing operational cost by reducing payroll and resorting to contracting services. The middle class is subject to periods of adjustment and transition. Once a job is lost debts keep pilling up. Unemployment figures not necessarily reflect the dynamic behind job instability. Credit was used to maintain social status with huge amount of interest charged. Even if consumers could stop incurring in new debt and reducings costs, high interest rates keep debts going up. Lately credit has been easily available to "higher risk consumers", people who most likely will not be able to pay their debts. The percentage of divorced persons in bankruptcy is bigger than the percentage of divorced persons in the general population. Of this percentage, women with children confront the most difficulties. Family budget full of debts, unstable jobs and all the other factors mentioned keep homes at risk. Between 1996 and 1998 the American middle class paid off 26 billions in credit cards and consumer debts through home equity mortgages. As an attorney for debtors in bankruptcy for over 25 years I recommend this book to understand middle class income instability and the increase in bankruptcy filings.

As a 20-year bankruptcy practitioner,I believe this book is a "must read" for any one whose income is less than seven-figure. It could happen to you! The factors leading to bankruptcy are varied, but have a common thread: an over extension of credit and a "hiccup" in life that makes it unduly burdensome or impossible to shoulder the debt. The seductive siren call of "For everything else there is MasterCard" and "VISA, everywhere you want to be" or "nothing down, no interest, and no payments for a year" is for many irresistible. Credit cards can be very convenient but also, as the authors point out, hazardous to one's economic health. Credit cards should come with a warning similar to the Surgeon General's warning for tobacco. While the explosion in bankruptcy filings during the past decade is fairly spread over the various age groups, it is the under 30 group that is the most vulnerable in the future. With almost limitless student loan availablility and multiple multi-purpose credit cards, i.e., VISA and MasterCard (even to high schoolers), the ability to incur indebtedness far beyond any reasonable realistic expectation of ability to repay is pandemic. When a person can leave college saddled with $50,000 or more in student loan obligations and incur an additional $50,000, or more, in "small bite at a time" debt in the span of less than 5 years, it does not take much of a "hiccup" in life to bring the house of cards down. As the authors so well illustrate, consumer finance education and teaching fiscal discipline at the high school level is an absolute must. Those who practice "immediate gratification," like Humpty Dumpty, are headed for a major fall and bankruptcy can not put them back together again.

This is an important book for women to read. It explores how our seemingly-secure middle class lifestyles may be shattered by a job loss or a serious accident or illness. The authors explain how credit card debt makes families particularly at risk. The most disturbing chapter to me was the description of what happens to women following divorce. The authors show that a divorced woman has a 300% greater chance of filing for bankruptcy than her married sister. Can it be, as the authors say, that a woman's economic success is still largely dependent on marrying--and staying married?

This book made me think about social class mobility in a different way. The authors study middle class people on their way down. They show how people with good educations and in decent jobs can have their lives turned upside down by a layoff, a job transfer, an illness, an accident, or a divorce. According to the authors, more than a million families each year are going to the bankruptcy courts for protection.

The book is well-written, lively and sometimes witty. A good, but disturbing, read.

This is not a "sky is falling" or alarmist book. It's not a negative gloom-and-doom book. It does focus on an unwanted event we consider negative, and it does occur in millions of peoples' lives. Da Big "B." It could happen to you, it could happen to me. Authors Sullivan, Warren, and Westbrook have decades of experience in the industry and provide one of the most detailed and accurate pictures of the people and circumstances within it.

In addition to statistics and research, tables, and graphs, the authors conducted detailed surveys of 2,452 people and provided case histories of folks that filed for bankruptcy in the 1990s. They come from all income and occupational levels, and from all geographical areas of the country. Just like you and me. It only takes a hiccup. Keep your eye out for the legislation that will be coming forward. Although it would be unpleasant, bankruptcy is not the end of the world, by any means. There are worse things that can happen in life.

The "Fragile Middle Class" has non-biased an informative information on....us. What is the reality behind the so-called middle class? While millions of individuals and families are members of this club, and we have a definition of what qualifies people as being part of it, what is the financial health of the American middle class today in 2003? Real income is still declining, even after the economic boom of the 1990s. (This was a pseudo economic boom). Personal debt is at record levels. If truthful accounting and honest financial disclosures are conducted, being middle class means living paycheck to paycheck, on the brink bankruptcy, due to even a minor financial hiccup: divorce, a staggering medical bill due to illness or accident, or loss of a job. The authors' introduce the new concept called "skidding," which is when a person changes jobs, which results in lower pay, and therefore less income coming in. And they discuss the record number of people who've recently gone bankrupt. This book is about those, who are most of us, that teeter on the edge.

First, debt is essential to living in our modern economy, and when used properly is good for us, and benefits the economy. We can't now, and have never been able to pay cash for our home, or a new or used car. When people invest in real estate or a business, they borrow capital. Having leverage is actually better. However, total Debt ratio is the largest it's ever been, combined with stagnant and declining wages. 2/3 of the American economy is dependent on consumer spending, completely dependent upon people spending their on money on--everything. One example, out of thousands, is the recent public "begging campaign" from politicians and high-profile business spin doctors in New York, imploring people to "come to New York and spend money," to revive the economy. When there is a slight dip in consumer confidence we hear about it from the media, because it's considered so vital to the U.S. economy.

This book uses historical as well as current notes, stats, and case studies, with the majority of the findings from the results from the decade of the 1990s. It is obvious that the tech-boom of the 90s was a temporary band aid that was applied to a long-term sociological and economic bullet wound. Financially, Americans are in some of the worse financial shape they've ever been in. Why is consumer debt at an all-time high? Why over one million bankruptcies per year? This book conducts research and analysis that paints the modern day picture from the perspective of people in the bankruptcy industry. And today, the bankruptcy numbers are so significant that the Federal government will soon pass legislation in an attempt to reduce the numbers of Americans filing. However the reduction in the number of filers means major changes need to be made by our societal and cultural expectations, financial institutions, and personal spending habits and behavior. Something that Congressional legislation can't do alone. There will be an impact, but it will be minimal. One could adopt my personal attitude, which is simply not to care.

This book is a follow-up to the authors' classic study of the bankruptcy issue As We Forgive Our Debtors. In this book, the authors look at the reasons debtors file for bankruptcy. Among the many interesting findings, the authors note the increased numbers of homeowners filing for bankruptcy. Not only are they filing because of other huge debts, but often they are resorting to bankruptcy BECAUSE of homeownership. Some resort to Chapter 13 in order to get caught up on mortgage payments, while others try desperately to hang on when it might have been more advisable to surrender the house. In short, homeownership is not seen so much as an asset as a liability.

The authors devote much of their book to the increased amount of credit card debt consumers in general and bankrupt debtors in particular carry and why this has happened. This is especially timely, as Congress seems well on the way of passing so-called bankruptcy "reform" that would benefit credit card companies to the detriment of debtors by forcing more of the latter into Chapter 13 or denying them bankruptcy access altogether.

This is a very readable, very well-researched book by three of the top experts on bankruptcy law in the United States.

Excellent read if you wondering about the number of bankruptcies or have been puzzled about the decline in real wages over the last few decades. It may make you think twice about your own finances!

It is an enigma that personal bankruptcy filings have increased apace during the past several years of unparalled US prosperity and stock-market gains. The masterful analysts of bankruptcy data who gave us "As We Forgive Our Debtors: Bankruptcy and Consumer Credit in America" have outdone themselves in this magnificent analysis of bankruptcy data to shed light on the paradox and why debtors file in this time of plenty. Hint: the issuance of credit cards has also reached yearly records during the same time. Has there really been national moral slippage, as the credit card companies contend? Find the answer here.

In some ways, this is the authors' companion book to their excellent book, As We Forgive Our Debtors. The Fragile Middle Class is less academic than As We Forgive Our Debtors and focuses more on the people who fall into bankruptcy and less on the economics and supporting cast of players (creditors and legal system)that comprise the U.S. bankruptcy system. In this book, the authors could provide reasons for why some individuals find themselves at the mercy of the bankruptcy court. For the time-pressed, Chapter One, Americans in Crisis, aptly summarizes the contents of the book.

The book provides the reader with a comprehensive definition of what it means to be 'middle-class'. It also provides the key socio-economic reasons underlying bankruptcy. These are: income disturbances (which includes unemployment and under-employment), credit cards, illness, divorce and housing. One chapter each is devoted to these reasons. Throughout, the stated goal of the authors was to tell the reader what the portrait of the bankrupt can tell us about the rest of society.

The authors re-affirm the old refrain that economic insecurity has greatly increased in American society. Their work strongly indicates that by far the greatest culprit leading to bankruptcy is job loss, followed by divorce and/or illness. In many cases, as the authors demonstrate, more than one culprit may be at work in a particular bankruptcy.

Perhaps the most interesting thing I noted in reading the book was the juicy little tidbit on credit cards on page 128. While the authors readily admit that mere possession of a credit card will not lead to bankruptcy, they do insist that the level of such revolving debt (for which they define the tipping point toward bankruptcy as short-term debt exceeding one and a half times gross annual income) is critical, and take care to point out that the debts can keep on compounding (at twenty-four percent interest, compounded monthly) long after the cardholder has shredded his or her piece of plastic.

In sum, this book was a very readable introduction to bankruptcy among the middle class. The authors have once again cranked out another excellent study.

Borrower's default on various credits and bankruptcy are pretty much Middle Class phenomenon (more than lower-income class). This makes sense as it takes a middle class income to get credit cards, auto loans, and mortgages. The truly poor don't have enough income to get credit and go bankrupt.

The Legislature has often treated this Middle Class phenomenon with laws to strengthen creditors' rights such as the Bankruptcy Reform Act of 2005. The latter made it more challenging for consumers to file for bankruptcy. It made it especially challenging to file Chapter 7 (complete discharge of debt); and, often rerouted debtors towards Chapter 13 associated with debt repayment plans.

Elizabeth Warren, a Harvard lawyer, has defended the Middle Class. She treats it not as an irresponsible dead beat; but instead as a victim of dubious creditors practices. As a result of her dynamic advocacy, the Legislature passed the Credit Card Act of 2009 to restrict credit card issuers abusive practices. And, she also implemented the Consumer Financial Protection Bureau (CFPB) to be a vigilant watch dog of nefarious financial service practices and improve the transparency of any consumer financial transaction.

Warren has conducted extensive research with numerous social scientist on related subjects: bankruptcy, consumer finance, Middle Class vulnerability. And, "The Fragile Middle Class" is one of the cornerstones of her research compilation. This data driven book covers two extensive studies: Consumer Bankruptcy Project Phase I associated with 1981 data and Consumer Bankruptcy Project Phase II associated with 1991 data. Additionally, the book also covers many related time series data from 1962 to 1996.

From her collective researches compiled within this book, Warren derives numerous interesting insights. First, the data confirms that bankruptcy is a Middle Class phenomenon. The bankrupt filers are not so different than the general population in terms of income, education, assets, etc... And, she supports that with extensive graphs comparing the distribution of each variable. She also uncovers that bankruptcy rates have skyrocketed from 1962 to 1996. This trend is associated with an equivalent skyrocketing of consumer debt level burden measured by debt to income ratios, and a similar rise in foreclosure rates. That is where Warren advanced that credit practices in issuing credit cards and mortgages were occasionally egregious and taking advantages of naive borrowers.

Warren's findings (consumer debt unsustainable rise, rising foreclosure) were over 20 years prior to the recent financial crisis. In other words, from her research she could see that a perfect storm was brewing. And, she did express alarming concerns within a related documentary called Maxed Out that covered the abuse of the credit card industry. She also addressed this issue in Inside Job.

In addition to abusive creditors practices, Warren discovered that medical issues were a major reason people filed for bankruptcy. Uncovered medical bills related to sometimes catastrophic medical events would cause the patient to pay the first few bills on his credit cards, and the second set on a home equity line. Pretty soon, the same person defaults on everything and loses a house to foreclosure, and has to file for bankruptcy. So, medical bills were the engine of credit destruction. Within Michael Moore's bonus features of Sicko (Special Edition) Warren goes on a 6 minute interview indicating how medical related bankruptcies not only affects the uninsured, it affects the insured as well! In 2007, she conducted with other social scientists an updated study on medical related bankruptcies. She found out that 75% had medical insurance! This same study concludes: "Medical impoverishment... is almost unheard of in wealthy countries other than the US. The US health care financing system is broken, and not only for the poor and uninsured. Middle-class families frequently collapse under the strain of a health care system that treats physical wounds, but often inflicts fiscal ones."

In view of the above, only people ignorant of how bad our current health care system is could defend it.

These people truly understand the bankrupt debtor. Few do. If either of the bankruptcy reform bills pass in their current form America is in trouble. You see, people need a fresh start. Current reform will push people into Chapter 13 and force people to live within IRS standards. Unfortunately, when people think of a bankrupt person they think "deadbeat." That's not true. And by reading this book its obvious that these authors understand that. What needs to happen is you tweak the Chapter 7 guidelines, but put more emphasis on giving people an incentive to file Chapter 13. (i.e., bankruptcy removed in 3 to 5 years when discharged!) This book is very well written and full of non-biased information like all of the other so-called "studies" published by people and companies who want bankruptcy reform.