The Fragile Middle Class: Americans in Debt

by Teresa A. Sullivan, Elizabeth Warren, Jay Lawrence Westbrook

Since 1997, the number of American families filing for federal bankruptcy annually has exceeded one million. By most measures, those who file are members of the middle class―a group that has long provided stability and vitality for the American economic system. This raises the troubling why, during the most remarkable period of prosperity in our history, are unprecedented numbers of Americans encountering such serious financial trouble?

The authors of this important book analyze court records and demographic data on thousands of bankruptcy cases, as well as debtors’ own poignant accounts of the reasons for their bankruptcies. For many middle-class Americans, the findings show, financial stability is fragile―almost any setback can be disastrous. The erosion of job stability, divorce and family instability, the visible and invisible costs of medical care, the burden of home ownership, and the staggering weight of consumer debt financed with plastic combine to threaten the financial security of growing numbers of middle-class families. The authors view the bankruptcy process in the light of changing cultural and economic factors and consider what this may signify for the future of a large, secure, and dynamic middle class.

Genres: Finance, Nonfiction, Society, Economics

448 pages, Paperback

First published March 11, 2000

Reviews

[Mary Whisner · Rating 5 out of 5]

This team of researchers (two sociologists and a law professor) has done very interesting empirical work on consumer bankruptcies in America using thousands of files from several jurisdictions (maintaining research protocols to protect privacy).

(Yes, Prof. Warren is now Sen. Warren.)

[Behrooz Parhami · Rating 4 out of 5]

I listened to the unabridged 12-hour audio version of this title (read by Suzie Althens, Yale U. Press, 2020).

This is a re-issue of a 2000 book, with a new preface that examines the persistence of old threats and emergence of new threats to the American middle-class in the two decades since the book's original publication. The fragility of the title refers to people being crushed by heavy debt burdens and thus being forced to declare bankruptcy. Bankruptcy laws were introduced to allow people who get in serious financial trouble, whether as a result of uncontrollable circumstances (such as job loss or serious illness) or because of unwise personal decisions, to have a chance at a fresh start.

The personal-bankruptcy crisis in the US is viewed as a natural consequence of a free-market approach to getting rid of bad debts. Taking credit-card debt as a case in point, all users of bank cards share in losses from those who are unable to repay what they owe, by being burdened with a high interest rate, typically around 18%. In Europe, and to a lesser extent in Canada, credit isn't as easily granted, but strong safety nets (such as generous unemployment benefits and free healthcare) constitute a social approach to dealing with the inability to pay back debts.

Personal bankruptcies are handled according to Chapter 7 or Chapter 13 of the bankruptcy law. Chapter 7, the more common option, is often used by people with substantial unsecured debt, such as medical and credit-card bills. Chapter 13 liquidates the assets to pay off one's liabilities. Because Chapter 13 only reorganizes the debts and provides more time for paying them off, it is a good option for people who earn enough money to cover an adjusted repayment schedule.

Almost all borrowers defaulting on credit or declaring bankruptcy are middle-class. The poor don't have enough income to get loans. Amazingly, people at the bottom tier of the middle-class are too poor to go bankrupt, given rising attorney fees, courtesy of Congressional "reforms" that have made the bankruptcy process, entailing $750-$1500 in attorney fees at the time of the book's original publication, much more complicated and, thus, quite expensive.

After two chapters entitled "Americans in Financial Crisis" and "Middle Class and Broke: The Demography of Bankruptcy," the book's next 5 chapters focus on main reasons for bankruptcies in the US (un-/under-employment, credit cards, sickness/injury, divorce, housing), before ending with Chapter 8, entitled "The Middle Class in Debt." Two appendices present the data used in the study and list other published studies in this area.

[Ietrio · Rating 1 out of 5]

You want to buy a brand new Mercedes car. It is not that you are a mindless puppet forced by the marketers to buy it. That car is excellent! Still, you would afford a new smaller Ford. But that would mean eating less or getting a smaller home. But that is doable. Now, a 15 year old Crysler would be what you can afford. This book tells you how you are entitled to make others "more fortunate" to pay for your Mercedes and at the same time that you are an idiot who needs their protection to navigate the troubled waters of Life. And, of course, nobody is going to pay a new Mercedes for you. Mostly you will get a better deal on the smaller Ford. Because all this is a scam. A scam to pay hordes of bureaucrats a good wage.

[Carol · Rating 3 out of 5]

An explanation of the gradual eradication of the middle class, the evils of credit cards, and why we need Liz Warren in the White House.