The Two-Income Trap (28 page)

Not all parents try to shield their children the way Sara Swerdling did. Sometimes the protection goes the other way. Many children, some as young as nine or ten, learn to screen the incoming phone calls to shield their parents from bill collectors. Charlene Dorset, a travel agent in a small town in Pennsylvania, describes a low point after her husband’s business failed: “Two men came to our door [when I was at
work]. They said that they read that we were going to be foreclosed on and that they would either buy the house [at auction] or give us loans to help us out. My son told them to get off the property and never come back. He must have looked so small and skinny next to those two men, but I don’t think he even knew it, he was so mad.”

If you care about children—about whether they succeed or fail academically, about whether they are self-confident or self-loathing, about whether they are thriving or under so much stress that they can’t sleep at night—then you should care about family economics. If you care about children, then you should speak out.

Conservative columnist William F. Buckley Jr. describes the bankruptcy process as follows: “What has caused the acceleration of bankruptcies is the painlessness of the operation plus little avenues of abuse attractive to high-class bankrupts. . . . You come back one day from the corner lawyer and say, Whee! I don’t owe anybody anything!”
²³
We are not sure who was on Mr. Buckley’s interview list as he developed his insights into how families respond to financial failure. We are pretty sure it was not one of the thousands of children who have just lost the home they grew up in. We also suspect it was not one of the millions of devastated parents who are watching the symbols and security associated with their children’s place in the middle class crumble away. But we know that every person who read that column and who did not call Mr. Buckley to task for his cheap cynicism helped make life a little harder for a whole lot of children and their parents.

The families we studied weren’t so different from our own. There were people who made everyone laugh, people who dreamed big, and people who made some really stupid choices. More than anything else, the families whose lives animate this book worked hard, played by the rules—and failed. They made many of the same choices we made—they went to college, they bought homes, they sent both parents into the workforce—but they got caught in a trap
of circumstances that would not let them go, and they ended up in a study of financial failure.

We believe in these families. But the rules they played by are no longer the rules that govern financial success for the middle class. In a single generation, the world has changed, and families are struggling to adapt. They committed themselves to thrift and hard work in exchange for a promise of economic security and a better future for their children. That promise has disappeared. There was a time when families sent mothers into the workplace only in times of distress. Today, women go to work every day just to maintain a tenuous grasp on a middle-class life. Plenty of families make it, but a growing number of those who worked just as hard and followed the rules just as carefully find themselves in a financial nightmare.

The collective pressures on the family—the rising costs of educating their children, the growing insurance payments and medical bills, the rising risks of layoffs and plant closures, and the unscrupulous tactics of an unrestrained credit industry—are pushing families to the breaking point. America’s middle class is strong, but its strength is not unlimited.

The evidence we assemble is unrelenting, but we remain optimistic. The American middle class was forged by families who knew hardship and conflict and who dreamed of giving their children something better. It has survived wars, scandal, epidemics, the Great Depression, and massive transformations in the U.S. economy. It is under assault, but the families that make up the great middle are not quitters. They are ferocious fighters, for themselves and for their children. Their willingness to send 20 million mothers into the workplace had unintended fallout, but it was rooted in a powerful desire to create a better future for their children. Their failure to demand accountability from their politicians and the organizations that purport to speak for them has left them weakened. But we believe that collectively and individually these families have the tools to change the structure of their schools, to bring their politicians to heel, and to fight back against big businesses that would steal their economic vitality. They
can
release the trap.

In 1999 and 2000, a group of scholars began to assemble the pieces of what would become the Consumer Bankruptcy Project of 2001. A dozen professors from seven different research universities contributed to the design and implementation of the study. Dr. Teresa A. Sullivan, Executive Vice-Chancellor for Academic Affairs of the University of Texas System and Professor of Sociology; Professor Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard University; and Professor Jay Lawrence Westbrook, Benno Schmidt Professor of Law at the University of Texas, took principal responsibility for designing the basic questionnaire and telephone survey questions for the 2001 study. In addition, Professor Michael Schill, Professor of Law at New York University and Director of the Furman Center for Real Estate and Urban Policy, and Dr. Susan Wachter, Professor of Real Estate and Finance at the Wharton School, University of Pennsylvania, were principal drafters of survey questions about housing and real estate. Dr. David Himmelstein and Dr. Steffie Woolhandler, both Associate Professors of Medicine at Harvard Medical School, designed the medical questions. Bruce Markell, Doris S. and Theodore B. Lee Professor of Law, and Robert Lawless, Professor of Law, both at the University of Nevada-Las Vegas, drafted the small business questions. Katherine Porter, Harvard Law School ’01, John Pottow, Assistant Professor of Law at the University of Michigan, and Dr. Deborah Thorne, Assistant Professor of Sociology at Ohio University, served, in turn, as Project Director, each with a hand in both the design of portions of the project as well as direct oversight of the data collection. These dozen principal investigators brought expertise from a number of policy areas such as family economics, demographics, employment, health care finance, housing policy, small business, women’s issues, law, sociology, business, and economics, as well as specific skills in data collection and analysis.

The 2001 Consumer Bankruptcy Project builds on three previous empirical studies of families that file for personal bankruptcy, conducted by Sullivan, Warren,
and Westbrook. The earlier Consumer Bankruptcy Projects are detailed in the Appendices to
As We Forgive Our Debtors
¹
(1981 study) and
The Fragile Middle Class
²
(1991 study). In addition, there was a supplementary study in 1999, the details of which are noted in Jacoby, Sullivan, and Warren’s “Rethinking the Debates over Health Care Financing: Evidence from the Bankruptcy Courts.”
³

Debtors who file for Chapter 7 and Chapter 13 bankruptcies must attend a meeting with the bankruptcy trustee assigned to the case. The debtor’s attorney nearly always attends the meeting with the debtor. The debtor’s creditors receive formal notice of the meeting and are invited to attend as well. The 2001 core sample was constructed by distributing questionnaires to debtors who attended these meetings in the target cities on the target dates. The goal was to collect a quota of 250 questionnaires from each district, with the proportion of Chapter 7 and Chapter 13 questionnaires in the sample reflecting the proportion that occurred naturally in each district. For example, in the Central District of California, 80 percent of the petitions filed in 2000 were for Chapter 7 bankruptcies and 20 percent were for Chapter 13 bankruptcies. Thus, of the 250 questionnaires collected in this district in 2001, the researchers sought to match that same distribution: 200 Chapter 7 questionnaires and fifty Chapter 13 questionnaires. In order to achieve this distribution, questionnaires were distributed at Chapter 7 meetings until 200 debtors responded and at Chapter 13 meetings until fifty debtors responded. The same approach—quota sampling by district, by type of chapter—was followed in each of the other four districts until a full sample of 250 cases per district was collected. The total 1,250 cases (250 cases per district) constitute what is called the “core sample,” which includes a split between Chapter 7 and Chapter 13 cases that is representative in each of the filing districts.

One questionnaire was completed per case. When couples filed jointly, they completed a
single
questionnaire. The questionnaire, however, collected separate demographic data for both husband and wife. The core sample consists of 1,250 cases, but because 320 of those cases were married couples filing jointly, there are 1,570 people in the core sample who filed for bankruptcy.

The 2001 core sample was drawn from California, Illinois, Pennsylvania, Tennessee, and Texas. This overlaps with the 1991 core sample, which was drawn from the same five states, and with the 1981 sample, which was drawn from three of the five states (Illinois, Pennsylvania, and Texas). Rather than drawing from multiple districts in each state, as in the earlier study, the 2001 Consumer Bankruptcy Project concentrated its resources by drawing a larger sample from one district per state:
the Central District of California, which includes Los Angeles; the Northern District of Illinois, which includes Chicago; the Eastern District of Pennsylvania, which includes Philadelphia; the Middle District of Tennessee, which includes Nashville; and the Northern District of Texas, which includes Dallas.
⁴
These five states represented 407,047 nonbusiness Chapter 7 and Chapter 13 filings in 2001, or about 26.4 percent of the 1,539,111 nonbusiness bankruptcy cases listed by the Administrative Office of the United States Courts nationwide.

Districts from five different states, each from a different region in the country, provided some geographic diversity. In addition, by drawing from some of the same districts as the 1981 and 1991 samples, the 2001 study maintains some continuity for researchers interested in longitudinal research. The choice of the specific districts within each state increased the size of the pools from which the sample was drawn, increasing the representativeness of the sample within the geographic location.

The five metropolitan areas captured in the core sample represent another form of diversity: the incidence of bankruptcy filings in the local population. To the extent that the decision to file for bankruptcy might be influenced by local legal cultures, variance in the filing rates per thousand may indicate differing bankruptcy practices as well.
⁵
According to data compiled by SMR Research Corporation, one area, Nashville, has higher rates of bankruptcy filings than most other U.S. cities, at 9.70 bankruptcy filings per 1,000 adults. Closer to the other end of the spectrum were Philadelphia (4.91) and Dallas (5.02), which have lower rates of bankruptcy filings than the U.S. population generally. In between were Chicago (5.83) and Los Angeles (8.02).
⁶

This core sample varies from a representative national sample of bankrupt debtors in that it represents relatively few districts. The distribution and completion of the questionnaires also introduce an opportunity for nonresponse bias. This bias could be introduced if the people who complete the questionnaires differ systematically from the people who do not complete questionnaires in ways that might affect the variables of interest. It is possible, for example, that people who are very uncomfortable in the courthouse would reject the questionnaire. This discomfort (an unmeasured characteristic) might be linked to some other characteristic that was measured (such as size of total debt). By their very nature, such biases are difficult to detect.

Two events in 2001 might cause some speculation that our sample was prone to seasonality bias: the events of September 11, 2001, and their subsequent economic impact, and the publicity given the debates in Congress concerning revision of the bankruptcy laws. In fact, however, the sample was drawn earlier in 2001, before either of these events had occurred.

To expand the analysis and to probe additional issues, two supplemental samples were developed. A central focus of the research is the relationships between housing,
mortgages, and bankruptcy. To study these relationships with greater reliability, the research design included supplementary collections of homeowners in bankruptcy, drawn from Los Angeles, Chicago, and Philadelphia. In order to examine financial problems outside urban centers, an extended sample was drawn from rural areas in Tennessee and Iowa.

TABLE A.1
Summary of core and supplemental samples