Over the last quarter of a century, many safeguards that people once counted
on to shield them from financial harm have been weakened or completely lost.
These include formal protections such as guaranteed corporate pensions and state
and federal unemployment benefits. And they include informal ones, like the
loyalty that employers once showed their workers by offering secure jobs with
relatively little prospect of long-term layoff. Other cushions that families
like the Ryans have relied on, such as the financial stability that comes with
a college education, also have eroded. The result is that families, even well-off
ones, operate with little margin for economic error. And they can pay a steep
price if anything goes wrong.... [such as] any of seven common but potentially
destabilizing events. They were: divorce or separation, a decline in a spouse's
work hours, death of a spouse, birth of a child, retirement or disability of
the main breadwinner, unemployment and serious illness....
Bankruptcy is one of the oldest economic safety nets that the government
provides working people. It was so important in early America that the Constitution
specifically authorized Congress to establish laws on the subject. In effect,
bankruptcy limits debtors' losses to the value of most or all of their current
belongings, shifting the risk of any greater losses onto creditors. In this
way, Abner Lipscomb, a 19th-century Texas Supreme Court justice approvingly
noted, people can "commence again, Antaeus-like, with renewed energy and
strength and capacity for business."
Still, for much of the post-World War II period, the process was little used.
In 1980, government statistics show, only 287,570 Americans filed for personal
bankruptcy. Most were young, with relatively little education and few assets.
But in the last two decades, personal bankruptcies have skyrocketed. Last year,
a record 1.6 million cases were filed. (That number declined only slightly this
year, to 1.58 million.) Like the Ryans, many filers were middle-aged, well-educated
and — until their assets fell short of their liabilities — of considerable
means.
Some financial industry executives and Bush administration officials suggest
that the rise in bankruptcies reflects profligacy among Americans. They are
particularly incensed about Chapter 7 bankruptcies, which let people effectively
wipe out their debts after forfeiting most of their assets but not their future
earnings. These critics of the law want to change it by making it harder to
go bankrupt.
A Chapter 7 filer is a predatory borrower, Assistant Treasury Secretary Wayne
A. Abernathy suggested in a speech last year, someone who "in a calculated
way borrows as much as he can, with little thought of paying it back, or in
some cases, with no intention of paying it back."
But Warren, the Harvard law professor whose Consumer Bankruptcy Project has
conducted extensive surveys of bankrupt families, believes that fundamental
economic change — rather than moral laxness — is behind the increase
in filings."People's jobs have grown more unstable," she said. In
many communities, "the basics of middle-class life — a good house
in a good neighborhood with good schools — have gotten so much more expensive.
That's what is knocking families off their financial blocks."
... The costs of coping with sickness and disease can be devastating. Harvard's
Warren and some of her colleagues estimated that in 2002, 424,500 families,
or nearly one-third of those filing for bankruptcy, did so in part because of
crushing medical expenses. That was a 20-fold increase from two decades ago....
There was an era in America when a family could live comfortably on the income
of just one worker. Not anymore. Today, three-quarters of college-educated families
like the Ryans are two-earner households. Only one-quarter try to make it on
the wages of a single earner. Meanwhile, the influx of wives to the workforce
has been especially important for middle-class families without college educations.
Government figures show that fully 80% of their inflation-adjusted income growth
over the last 25 years has been the result of the rising earnings of women.
During the same span, men's wages have stagnated...."
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Copyright 2004 Los Angeles Times