From Cradle to Grave
by Deborah Thorne
September 20, 2020
This interview with Deborah Thorne, an associate professor of sociology at the University of Idaho, was conducted and condensed by franknews.
Deborah | I began studying consumer bankruptcy back in 1996 when I was a doctoral student at Washington State University. It was my dissertation topic. After I graduated, Elizabeth Warren contacted me and offered me a post-doc at Harvard, working on the Consumer Bankruptcy Project. So, we sold our house in Washington state and moved back to Cambridge. Now I'm one of the co-principal investigators on the CBP, along with two other fantastic colleagues--Bob Lawless at the University of Illinois and Pamela Foohey at Indiana University.
frank | How would you explain the Consumer Bankruptcy Project?
It's an ongoing study that originated in 1981 with Professors Elizabeth Warren, Terry Sullivan, and Jay Westbrook. The goal of the research has stayed the same: to develop a better understanding of who files for bankruptcy, why they file, where they file, and the circumstances under which they file.
There are a lot of different angles that you can take when it comes to studying the issue of consumer bankruptcy. It is certainly not a monolithic topic or experience. We have looked at it in terms of race. Elizabeth had a great piece 20 years ago about how bankruptcy is a women’s issue.
One of the things that has been really pulling at my heartstrings lately is the relationship between aging and consumer bankruptcy. Our data suggest that, since 1991, within the national population, there's been a considerable uptick in the rate of bankruptcy filers who are 65 and over. And within the bankrupt population specifically, our data shows that, during that same time frame, the percent of filers who are 65 or over has increased by 497%, almost five-fold.
What explains that increase?
One of the questions we ask in our survey is, what went wrong? What caused the bankruptcy? For older senior filers, the two leading causes are a drop in income and a rise in medical costs.
So many seniors reported a decline in income. Of course, we would expect some decline if only because they may be transitioning from employed to retired, but our data suggest that they just don't have enough to survive on. A lot of folks talked about having lost their retirement investments almost entirely in 2008 - they had 401ks instead of pensions their pensions converted to 401ks and they had no idea how to invest that money.
Even if they wanted to return to work to supplement their retirement income and even if they could physically manage it, it’s near impossible to get a new job at that age. That was a fairly common thread in their stories. They would say, “I’m approaching retirement age or I am at retirement age, but I am planning to work another 5 to 10 years.” Or they wrote about either being laid off or getting sick and then trying to go back to work to find a new job. No one wanted to hire them. It is hard to make it as an old person. We know that age discrimination is real.
The other issue that hits them particularly hard is the cost of healthcare - their medical bills and prescriptions.
The average out-of-pocket amount that a couple needs to pay for medical expenses between ages 65 to 85 is $300,000.
That includes all of the other things that Medicare doesn't cover - prescriptions, dental, eye care, PT, and all the other crap. That is the out-of-pocket medical expenses on average. That is just insane.
I know. I’m like, I am so screwed when I retire! I was taken aback when I first learned that.
The oldest respondent who participated in the research was 92 years old. How is that ethical? Many of the senior filers described feelings of shame and anger and discouragement in their stories because they believe they did everything right. And they did: they worked, they paid their taxes, they served their country. We heard from many veterans who found themselves in bankruptcy.
They played the game like they had been told to play the game, and it didn't matter.
They are virtually unemployable, and many don’t have enough money to survive retirement. Their fear is palpable. Where are they going to go? What are they going to do?
Many also have a lot of credit card debt. Of course they do, but it’s not like they were spending recklessly on a credit card. Think about it--if their car breaks down, they don’t have any money, they put it on a credit card. They put prescriptions on a credit card.
Isn’t it tragic that we, collectively, as Americans, often rely on credit cards to be our social safety net? And when that falls apart, we are left with bankruptcy.
What happens to debt when they reach the end of their lives?
It goes away. Unless it's been co-signed. Otherwise, it just disappears. If they own a home or property, and there is some equity, creditors can put a line on it. And collect when the estate is sold.
It's strange then that there would not be age-specific debt forgiveness.
It is, isn’t it? No, instead we have reverse mortgages.
What is that?
You know, the ones that Tom Selleck pushes on TV. I'm like, you son of a bitch. I can’t believe he’s promoting this.
Basically, if you're retired and have equity in your home, you can essentially sign over the deed to your home, the company pays your monthly mortgage, and you continue to live in the house. That's probably where Mark, my husband, and I will end up. We are older, we don’t have any kids, and we'll never have this house paid off. In our later years, we’ll be like, “Okay, sign the house over to them so they'll pay my mortgage every month and I can afford to live here until I die.” And then they own it.
It is crazy. And in the advertisement, Tom Selleck is saying that “this is the way you can enjoy your retirement.” Older Americans should not have to go to that extreme to enjoy their retirement.
We had a time in this country where there was a better social safety system. Sure, it was mostly for white males, I’ll give you that, but we did ensure that a portion of the population retired comfortably. Full Social Security benefits used to start at 65, now it’s at 67. Medicare used to cover more than it does now. We had pensions instead of 401ks. That safety net was the result of policies, and it has been unraveled by policies. What kind of a nation are we when we say good luck making it for the next 20 years to those who have the fewest options?
What happens to your life after you declare bankruptcy? And does the treatment vary based on the reasons that you file?
No, different reasons for filing don’t result in different outcomes. No one is going to cut you a break if you filed because of medical debt rather than credit card debt. It doesn’t matter why you file for bankruptcy. For the most part, bankruptcy is bankruptcy.
There are two types of consumer bankruptcy. Generally speaking, people will file a Chapter 7 if they have no assets--like if they don’t outright own a home. Chapter 7s make up about 65% or 70% of the consumer cases. So, for example, if you don’t own a home, but you have a lot of credit card debt, then you would probably file a Chapter 7. You pay your attorney around $1200, they file the petition, assuming no issues, your debts are discharged, and you’re done. Takes a couple of months.
Chapter 7 is quick and dirty.
Chapter 13 is mostly for people who have considerable assets, like a home that they want to keep. But they have to be able to continue to pay the mortgage while they are in bankruptcy. Chapter 13 is essentially a multi-year, usually five year, repayment program. Families are in bankruptcy for five years - and during that time, every dime of extra, expendable income they have, goes to repay their creditors. The budget that they are required to live on is beyond unforgiving. Creditors don’t get anything in chapter 7, but they get a little bit back in Chapter 13.
A lot of people, when they file bankruptcy, assume that Chapter 13 is the more moral thing to do compared to Chapter 7. That is the narrative that's out there, namely that people who file Chapter 7s are just walking away from their bills, but at least people who are filing Chapter 13s are trying to repay their bills.
But 60% of people who file Chapter 13 fail anyway. It's not a very effective system.
The judge or your creditor or future creditors or employers or landlords, they see bankruptcy as a bankruptcy. They don't care how you got into it, and they don't care if it's a Chapter 7 or a Chapter 13.
Right. What does filing bankruptcy do to your credit?
Your FICO score takes a hit, probably several hundred points. Keep in mind though, that most people who end up in bankruptcy have been struggling financially for quite a while, so it’s likely they have a poor credit score to begin with. Most people will continue to try and try to make their finances work for years before they file for bankruptcy.
As someone who's been studying this issue for decades, and who is somewhat removed from their pain, it is easy for me to say that they should've filed right off the bat. When it becomes clear that the only thing that will save you from bankruptcy is winning the lottery or the death of a rich relative, you really need to consider filing.
Look, if you are drowning in debt because of a terrible illness, it’s unlikely that things are going to turn around quickly enough. If you are unemployed at 67, and that is what is pushing you into bankruptcy, you’re probably not going to get a job that will pay enough for you to avoid filing. But people will say, “You never know. Maybe I will get a better job. I don’t want to file. I keep hoping that things will turn around.”
Hope is so central to this experience.
The reason that so many of these bankrupt seniors have this debt in the first place is because we have such a crappy social support system. If we had a humane healthcare system, like virtually every other damn country in the world, people wouldn't end up with massive medical bills.
I mean, think about it-- they are spending their final years transferring their wealth to a system and an industry that is out there to make a profit.
And why the hell should they transfer their wealth to these corporations? I really struggle with that. I get the whole idea of, you're supposed to pay your bills and blah, blah, blah. But if the bills originate from such an unjust system, such a predatory system, should we extract the wealth that is supposed to keep older Americans afloat during retirement years just to ensure more profit for some already-bloated corporation? I don't know. It doesn't seem right.
What percentage of bankruptcies stem from medical debt?
Wow, that is high.
It is high. And medical debts can grow exponentially, almost at the blink of an eye. And it doesn’t take a catastrophic illness or injury to create that debt. Maybe your kid needs insulin. Maybe you lose your job, so you lose insurance, and then you need a routine appendectomy. Often, the cost of physical therapy isn’t covered--and it’s not cheap. How do you afford the most basic things?
People are really detached from the concept of luck and money. Insanely tragic things with huge financial costs can happen to anyone at any time.
Right. And terrible things do happen.
Dr. David Himmelstein, who was a researcher on the Consumer Bankruptcy Project, pointed out that even as economically privileged as he is, if someone in his family was ill or injured and needed long-term physical therapy, he too would be facing bankruptcy. His point was that virtually no one, regardless of their economic standing, is immune.
What are you paying attention to in terms of policy?
The policy conversation that weighs most heavily on my mind right now is actually the student loan debt issue.
Students today are so, so buried in debt. Their debt is negatively affecting our economy and society--they cannot afford homes, they cannot afford new cars, they cannot afford to put money into retirement, they really cannot afford kids. And those who want to pursue an advanced or professional education, education that benefits all of us, well, they cannot afford that either.
It is a fairly recent phenomenon to spend the majority of your life in debt, and a great deal of debt, for something that is a social good.
In addition to being a social good, a college degree is often necessary to attain a job that will bring in any sort of income.
Absolutely. They're damned if they do, and they're damned if they don't. And they know it. But they feel like they have no choice--to have any shot at a good job, they need that credential.
I talk about this with my students in every class I teach. They figure out how much they are going to have in student debt, what their monthly payments will be, and for how long, and then we discuss the costs associated with living a middle-class life. How will they be able to come up with a down payment for a house? How much is a decent car? Do they want kids? How much is daycare? Childcare costs are craziness. If they don’t have health insurance through their employer, can they afford private coverage? They are paralyzed once they start to realize what they are shouldering in debt. They are really discouraged, frightened, and sad.
What kind of a country does that to our kids?
We want them to be educated. We want doctors and we want scientists and we want teachers. We expect all these things, but we don't want to pay for it. And I think it's just horrific. Absolutely horrific.
I think student debt cancellation is a smart economic policy...not to mention humane. Even if you only want to think about this from an economic perspective, canceling debt would free up so many people to participate in the economy. But no, we refuse to do that. Fine. But I think it is economically and ethically wrong to keep so many current and past students in massive debt. It is shortsighted.
It is so overwhelming, and in many areas getting worse.
It is. It is getting worse. It's incredibly heavy, and it is affecting people in every age group. And this is just the tip of the iceberg - these are just the people who have actually filed bankruptcy. There are a lot of people who still are living in major financial distress who have not yet turned to bankruptcy.
These financial struggles are hitting Americans at virtually every age.
We burden students with student loan debt, debt that they cannot discharge in bankruptcy. The cost of health insurance and healthcare is increasing, which hits middle-aged families particularly hard, especially if they have children. And older Americans no longer have the security of a pension, but rather they must manage the risk of a 401k. It's from cradle to grave.
We've enacted and implemented policies over the last 30 or 40 years that have put people in very high-risk circumstances. Thank goodness for the current turmoil and protesting in our country because it has exposed so much. It’s easy to get pretty discouraged when I research and write about the financial struggles of so many Americans. But it is not entirely hopeless.
I mean, our current crappy circumstances are a result of crappy policies. And crappy policies can be reversed.
You can reverse policy. We know that we have had better policies in the past and that it hasn't always been this risky to live in this country. It's been better and we know that it can be again. This isn't inevitable. It is not an accident that we are where we are. The potential for change, that leaves me a little more hopeful.