Bankruptcy

Middle-Class the New Face of Bankruptcy

By Chris Kramer

The middle class is increasingly resorting to bankruptcy despite college education, home ownership and other historical signs of success, according to a new study.

While the middle class's investments in higher education and real estate have typically shielded them from the hardest economic storms, that is no longer the case.

"The Vulnerable Middle Class: Bankruptcy and Class Status," a new study by Elizabeth Warren, Harvard Law School Leo Gottlieb professor of law, and Deborah Thorne, Ohio University associate professor of sociology illustrates how bankruptcy demographics have changed in recent decades.

An exclusive preview of Warren and Thorne's new book by USA Today shows how bad mortgages, rising unemployment, and the trappings of success led millions of Americans into debt.

Warren and Thorne compared annual bankruptcy filings from 1991 through 2007, and saw an increasing trend of middle class Americans, dispelling the myth that bankruptcy was a tool for the destitute or extreme spenders.

The article profiles several bankruptcy filers, including a single mother who went from earning $275,000 a year to filing bankruptcy after starting her own business, as well as a couple nearing retirement whose dropping home value left them without a safety net.

The study's authors admit that much of the data comes from recent "boom" years, and ends at the same point the recent recession began.

They expect that looking back at the past two years?and likely into the future?will show an even greater upswing in middle class Americans turning to bankruptcy protection.

Full post as published by The Bankruptcy Blog on November 19, 2009 (boomark / email).