Bankruptcy Filings On the Rise Among Middle Class

Bankruptcy is on the rise nationally, with personal filings and business filings reaching their highest points since 2005. A new study highlighted in USA Today shows these trends are being driven largely by college educated home owners

Bankruptcy filings, it seems, are hitting the middle class hard.

The study, presented by Harvard law professor Elizabeth Warren and Ohio University sociology professor Deborah Thorne, explores the role that personal bankruptcy plays among the middle class.

Beginning even possibly before the onset of the current recession, bankruptcy filings among the middle class have increasingly defined the nature of personal bankruptcy in the country. In 2007, more than 100,000 families in the middle class filed for bankruptcy every month, according to the report, which will be released publicly next year.

Of those who did file for personal bankruptcy in 2007, they were far worse off financially than those who filed in 2001.

Professor Warren told USA Today that “the bankruptcy filings are a warning about the risks now facing middle-class Americans.” The indication is that a college education, solid employment and home ownership are no longer indicators that individuals are safe from the financial hardship that can lead to bankruptcy.

Middle class Americans have long operated under the assumption that upwardly mobile behavior will safeguard them against financial loss. The study is showing this not to be the case, necessarily.

“It’s horrifying for people who are not used to anything but an upward trajectory,” bankruptcy lawyer Bob Anderson told USA Today. What has in the past seemed like a stable trajectory has become much less of a sure thing.

One outcome of the study is to show that filing bankruptcy is not just a subculture of society that is more prone to risk-taking, but rather that it is a problem that can impact individuals across financial divides.

Traditionally, the causes of bankruptcy have often been health problems, excessive spending and poor saving. With this study, however, there is a growing condition of middle class lifestyle that the established methods of wealth-gathering are more risky than they have ever been.

“As these time-honored wealth-building strategies become higher-risk undertakings, the middle class may face even greater economic instability in coming years, suggesting that in the modern economy, the path to prosperity may be far more perilous than anyone imagined,” the study concludes, according to USA Today.

Part of the study is an investigation of bankruptcy filers who have some college education. The rate of those to file bankruptcy who have been to college is on the rise. In 1991, 46.5 percent of those who filed for divorce had been to college. In 2007, that figure rose to 58.9 percent.

The high cost of education, student loan debt and a shrinking job market could be one factor for the rise in college educated bankruptcy filers. Home ownership may also have pitfalls as home prices have become more volatile in recent years.

As the economic landscape changes, middle class individuals are forced to adjust. And with higher levels of economic uncertainty, personal bankruptcy is often the end result. This new study proves what many middle class people already know about the troubling causes and effects of bankruptcy.