Plumb Lines

May 25, 2009

Sympathy for the Debtor

Filed under: Uncategorized — Michael E. van Landingham @ 8:59 am

There was a gripping article in the New York Times Magazine last week about economics reporter Edmund Andrews’ rapid descent into debt after the purchase of a dream home in the DC suburbs with his (second) dream wife. A preview of his upcoming book, Andrews gives a careful accounting of things we would be loath to disclose to the world—our salary, child support payments, clamoring need for cash, even our marital difficulties. One cannot help but be astonished at how this seemingly responsible, educated man let himself sink so low, nor get rid of the nagging feeling that if it could happen to him it could happen to anyone with the best of intentions. Beyond that, he arouses anger at the bankers who allowed him to spend money like Poe on payday.

In the careful picture he paints of how his new life with his new wife took a turn for the worse, leaving him reliant on credit cards and “really ugly” mortgages, Edwards leaves out one huge detail. His wife had filed for bankruptcy. Twice. Megan McArdle of The Atlantic got the scoop, and explains why this is a big deal:

This is really highly unusual.  For starters, the overwhelming majority of people who file bankruptcy do not make anything close to $100,000 a year–the standard estimate when the 2005 bankruptcy reform was passed was that about 80% of filers had household incomes below the median income in their state.  The number of affluent people who file twice is even smaller, and has presumably gone down since the 2005 filing largely eliminated abusive serial Chapter 13 filings, which used to be used, often by quite wealthy people, to forestall evictions or foreclosure.

The bankruptcy code requires filers to wait 8 years after a previous Chapter 7 discharge.  Barely four months after she became eligible, Patty Barreiro filed again.  And the filing shows some suggestion of strategic debt management.

Andrews wants us to feel bad for the plight of his new blended family, but this fact confirmed a strange feeling I had while reading his narrative. Throughout the excerpt, he portrays himself as hysterical over finances and his wife as rather blasée. He comes up with numerous excuses for her, that she “was a stay at home mom for awhile and out of the work force,” or that she lovingly buys Edwards new shirts. This exchange between the two of them also raised some questions on my side of the computer screen:

We were broke.

My stomach churning, I reached Patty on her cellphone as she was running errands. “We are out of money,” I snapped, skipping over any warm-up chat.

“What do you mean, we’re out of money?” she asked in bewilderment.

“I mean, I just checked my bank account, and we are out of money,” I repeated, my voice rising in panic. “We can’t buy anything!”

[…]

“How the hell could we have run through so much money so quickly?” I asked her accusingly.

Patty wasn’t sharing my shock. “I don’t know what’s going on,” she responded. “Let’s talk about it when you get home.”

While I have no doubt that his wife was certainly well-intentioned and extremely caring, that does not mean she was good with money. And the fact that she had a bankruptcy in her past, despite the reasons he misdirected to PBS in response to McArdle’s scoop, means he should have been cautious to trust her with any kind of debt. Indeed, even if the first bankruptcy was about taxes, you cannot get those discharged in the event they went unpaid for fraudulent reasons. Even if unable to pay for good reason, a tax court will most likely restructure your payments to the IRS. Furthermore, the second bankruptcy on her record, in which Andrews is not included, discharges more than just lawsuit debt.

So the bankruptcies are relevant for a conversation about how Andrews got up to his eyeballs in debt. He was no doubt encouraged by the “magical thinking” of his new wife who spurred him to spend recklessly despite his $3,000+ monthly alimony and child support payments from his previous marriage. Husbands and wives get each other into debt all the time, and while the credit crisis may have exacerbated the situation by permitting them greater access to credit the story is not one of someone getting lost in the sub-prime shuffle. He knew full well what he was getting into, but ignored the danger. My fiancée and I had to discuss finances as part of our Episcopalian marriage counseling, and I’m fairly confident she knows a great deal about my finances and fiscal savvy, as I do about hers.

I hope Andrews survives his foreclosure and his marriage is strong. I really do wish anyone struggling with debt well, especially those on the edge of losing homes. No one should go through that. But at the same time one shouldn’t try to discharge responsibility like so much unsecured debt in Chapter 7. At least he doesn’t live in Dubai; they have debtors’ jail there.

-Michael E. van Landingham

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