A Fighting Chance

See also Robert M. Lawless, Angela K. Littwin, Katherine M. Porter, John A. E. Pottow, Deborah Thorne, and Elizabeth Warren, “Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors,” American Bankruptcy Law Journal 82 (2008): 349–406. Subsequent work demonstrates that the sharp increase in attorneys’ fees after the change in the laws resulted in smaller payouts for creditors. Lois R. Lupica, “Final Report: The Consumer Bankruptcy Creditor Distribution Study,” American Bankruptcy Institute National Conference of Bankruptcy Judges, 2013.

if they tried to use bankruptcy to clear their debts: “Nearly a quarter [of families]—23.6%—said the debt collectors had raised the subject of bankruptcy explicitly, threatening what would happen if they filed. More than half who received such warnings recount being told by the debt collector that it was ‘illegal’ to file for bankruptcy, or that, if they filed, they might go to jail, the I.R.S. would audit them, or they could lose their jobs. The remainder received a mix of misinformation, including the oft-repeated ‘you won’t qualify.’” Robert Lawless et al., “Did Bankruptcy Reform Fail?”

or stopped taking their kids to the doctor: In The Two-Income Trap we describe that “60% of bankruptcy filers went without needed medical care in order to save money” (77). Similarly, a study using nationally representative data from the Community Tracking Study found, “People in families with medical bill problems also reported much greater trouble getting care because of cost concerns—one in three did not get a prescription drug, one in four delayed care and one in eight went without needed care.” Jessica May and Peter Cunningham, “Tough Trade-offs: Medical Bills, Family Finances and Access to Care,” Center for Studying Health System Change, No. 85 (2004).

get more money for asbestos victims: For more discussion of my work relating to asbestos victims, see note, “payment for their injuries.”

families gain access to more affordable banking services: Sheila Bair was a highly effective chairman of the FDIC. She reorganized much of the agency to make it more efficient and to put it on sounder financial footing. She also established the Committee on Economic Inclusion to explore ways to create alternatives for underserved families who used payday loans and money orders by bringing them into the banking system.

3 | Bailing Out the Wrong People

one entry: “Submit reports”: The Congressional Oversight Panel (COP) was charged with putting out “regular reports” on the actions taken by the Treasury secretary, the impact of those actions on the financial sector, the extent to which those actions contributed to market transparency, and the effectiveness of those actions on foreclosure mitigation and costs and benefits to the taxpayer. In carrying out its oversight duties, COP could engage “experts and consultants,” “hold hearings,” “take testimony,” “receive evidence,” “obtain official data,” and receive and consider “reports required to be submitted [to it].” See Section 125, Emergency Economic Stabilization Act of 2008, Government Printing Office, Public Law 110–343—October 3, 2008.

more bankruptcy research: The number of people filing for bankruptcy dropped sharply in the wake of the 2005 amendments to the Bankruptcy Code, so the goal of the 2007 Consumer Bankruptcy Project was to understand who was filing now and to compare our findings to the findings that had emerged from similar studies in 1981, 1991, and 2001. The 2007 study examined a nationwide random sample of households in bankruptcy across the United States. We drew on questionnaires, interviews, and court records—in total amounting to almost a thousand pieces of information for each debtor—to sketch a detailed picture of the debtors in bankruptcy. The data were gathered under strict confidentiality requirements typical of human-subjects research protections at American universities. All data analysis was done using anonymous numerical identifiers for the study participants. When referencing individuals, names and specific identifiers have been changed to preserve anonymity.

We found that those who filed in 2007 were very much like those who had filed in 2001. This suggested that the 2005 amendments, which led to a huge reduction in the number of bankruptcies, had not cut out the more prosperous debtors or the ones who could somehow better manage their debts, or that the new law had otherwise curbed “abuse.” Instead, the data suggested that the impact of the amendments was to squeeze struggling families across the board.