Bankruptcy reform hits women hard
Jennifer Moran was only 23 when she faced a financial nightmare. After quitting a $45,000 sales job because it took her into dangerous neighborhoods, she became a CVS store manager, earning only $23,000. With her salary cut in half, her debts mounted. Her car was repossessed, and bill collectors knocked on her door at 3 a.m. Frightened, she took a lawyer's advice and filed for bankruptcy.
"I was a young, naive girl and had no understanding of finance or legal matters or what my options were," says Ms. Moran, of Point Pleasant Beach, N.J.
Whether she should have filed for bankruptcy is debatable. But under reform legislation now working its way through Congress, debtors like her may no longer have the option of filing in the first place. By making it tougher and, possibly, more expensive to declare insolvency, the bill aims to encourage personal responsibility and restore more power to creditors in an era when personal bankruptcies have become more popular.
If the reform becomes law, however, women will be the most affected, experts say.
"Make no mistake, the new bankruptcy bill will fall hardest on women," says Elizabeth Warren, a professor at Harvard Law School and coauthor of "All Your Worth: The Ultimate Lifetime Money Plan."
Even without the reform, more than 1 million women will find themselves in bankruptcy court this year, outnumbering men by about 150,000, if past trends hold, says Jill Miller, chief executive officer of Women Work! in Washington, D.C.
Women with children, Professor Warren explains, are more vulnerable than ever before. "They're spending more on the basics, so they have less flexibility in their budgets if something goes wrong. Single women early in their career tend to have lower income and higher expenses. That puts them at risk. Older women often have much less built up in retirement funds and are counting on home and cash assets that won't be protected in bankruptcy."
Single mothers, who often work in low-wage jobs, are 50 percent more likely to file for bankruptcy than married parents, and three times more likely than childless couples, says Ms. Miller.
One divorced mother in suburban Chicago has refinanced her house eight times in 12 years and still owes $25,000 in credit-card debt, says Catherine Williams, vice president of Money Management International, a credit-counseling service in Houston.
About half of that debt, Ms. Williams says, is an accumulation of day-to-day expenses: "Johnny sits on his glasses, Susie loses her coat, and the price of gas goes up." Other expenses involve vacations and what Williams calls "compensation spending" to make up for the divorce.
"If she didn't have the equity in the house, she probably would have been bankrupt," Williams says.
When the woman asked if she should file for bankruptcy, Williams reassured her that she has the ability to repay the debt. The woman earns $32,000 and her former husband pays modest child support.
Williams, a financial counselor for nearly 25 years, does not think the new bankruptcy law will affect women too disproportionately because a means test takes income into account. "Those who will feel the biggest impact will be filers who have the income to repay the debt but just don't want to," she says.
