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.
Contrary to stereotypes, the majority of those who declare bankruptcy are not spendthrifts who abuse credit cards. Howard Ehrenberg, an attorney in Los Angeles who serves as a Chapter 7 bankruptcy trustee, sees more than 100 debtors a month who have filed for bankruptcy.
"They have not run up their bills with no intention of paying them," he says. "Most people file bankruptcy because one of three calamities has hit them - a serious illness to themselves or a person who makes the money in the household, the loss of a job, or a divorce."
A generation ago, Warren says, when families had more savings and fewer debts, a divorcée was in better financial shape. Today she is likely to have almost no savings, a load of debt, and an income that has already been figured into the family budget. "Even with better enforcement of child support and better-paying jobs, divorced women are at greater risk for financial collapse than they were a generation ago."
That may explain why women appear to file for bankruptcy more frequently than men. The evidence, however, is based on a single study done in a single state in the late 1990s. Poring through filings in Nebraska, attorney Oliver Pollak found that the share of women filers rose dramatically between 1977 and 1987. By 1997, they had overtaken men (although joint petitions remained more numerous).
Under current laws, noncustodial parents who file for bankruptcy cannot discharge their child support and alimony. Under the proposed new law, Miller says, they still can't discharge those debts, but there's a difference. Claims to back child support and alimony would be on equal footing with the claims of credit-card companies. In some cases, "mothers will be coming in after other creditors have received their payment," Miller says. "It's absolutely terrible."
Mr. Ehrenberg sees another change in the new bankruptcy bill that could affect women. Attorneys will now be liable for inaccuracies in a debtor's bankruptcy papers.
"They're going to have to investigate their own clients," he says. "It's widely believed in the bankruptcy community that many attorneys who provide moderate-cost legal services will pull out because they can't afford to do the case for that amount of liability for the same price. It would not be surprising that women would be adversely affected by not being able to find affordable legal representation."
Moran knows firsthand the importance of good legal representation. In her case, bankruptcy was unnecessary, the result of bad legal advice.
"Could you imagine going bankrupt for just $6,000 in debts?" she asks. Still, she has put the experience behind her. Now a sales executive and author, she says, "I have an 'A' credit rating and a beautiful home."
Eva Rosenberg, publisher of TaxMama.com in Northridge, Calif., struggled with mounting debt for 15 years after an automobile accident left her unable to work. She refused to consider bankruptcy as an option. "I knew I had the earning capacity to deal with [my debts]," she says. "Not everyone has that." As a tax consultant who sometimes recommends bankruptcy to her clients, she says, "Sometimes bankruptcy is the best alternative for everybody concerned."
Others offer reassurance that there is life after bankruptcy. A woman who asks to remain anonymous found herself in deep financial trouble as the result of a failed business. She and a male business partner founded a company in New York. After she left the firm, her former business partner defaulted on the line of credit. Creditors placed an $80,000 lien on her personal bank account. A lawyer advised her to file for bankruptcy.
"My credit rating tanked," she says. "The process was terrifying and humiliating at first, but I realized it was a necessary process to get out of a financial mess created by my own business ignorance - signing things I didn't read - and by another person."
Today, two years later, she has one credit card with a $600 limit that she pays off each month. She married recently, and her husband helps her finance certain purchases. She is working to build up her credit rating.
Moran is disappointed that the new bankruptcy bill does not address a fundamental problem that contributes to bankruptcies - the barrage of credit-card offers that encourage people to overspend. "For somebody who doesn't have will power or an understanding of what they're doing with those mailings, it's very dangerous," she says.
Although bankruptcy stays on a person's record for 10 years, legal experts encourage debtors to begin rehabilitating their credit reputation by getting a secured credit card. "Deposit $500 with a bank," says John Maxwell, an attorney in St. Charles, Mo. "Begin making charges and making repayments in a timely fashion."
To avoid problems, Ms. Rosenberg urges women to pay attention to household finances. "Do not leave them in the hands of your husband," she says. "Look over all the tax returns before you sign them. If you're not comfortable signing them, file a separate return. Even though it will cost a little more, you won't be responsible for his omissions or his lies."
She also joins other financial experts in warning about the perils of plastic. "Don't run up your credit cards for frivolous things. Think twice before you buy something."
Warren encourages open communication, noting that money is the No. 1 topic that couples find difficult to discuss. "Our files are full of people who were keeping money secrets from each other - people who wouldn't talk about what they spent, what they earned, financial commitments they had made," she says. "That harms not only the relationship but also the family's economic security."
Whatever a woman's financial situation, Warren emphasizes the need for greater confidence, noting that women often feel helpless about money. "Too many women have been taught for too long that it's hard, it's complicated, that only guys understand it and can really manage it. That's wrong."
The bankruptcy bill, she adds, "is just one more signal that women need to take care of themselves first. The safety net is shrinking, and women can't count on anyone other than themselves."