The Class of 2008: The Great Recession and the American Debtor

Contributing Editor: Leslie E. Linfield Institute for Financial Literacy Portland, Maine llinfield@financiallit.org December 2009 marks the two-year anniversary of when the United States entered into the deepest economic recession since the Great Depression. Unemployment has surpassed the 10 percent mark. Bankruptcy filings are breaking new records month after month since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was enacted. In fact, October 2009 was the highest filing month post-BAPCPA with 135,913 consumer filings, followed by July 2009 with 126,434 consumer filings. Y e t w e a r e a l s o hearing that there are signs of recovery and the economy is turning around. Berkshire Hathaway CEO Warren Buffett said in an interview Leslie E. Linfield in September that the economy appears to have leveled off. Federal Reserve Chairman Ben Bernanke affirmed, stating that ?from a technical perspective, the recession is very likely over at this point.? So what does this mean from the perspective of the American debtor? For several years, I have written this ?Class of? article for the ABI Journal. It is based on an annual paper published by the Institute for Financial Literacy (IFL) on consumer bankruptcy demographics. This year?s paper is interesting because it may be the only year that actually captures debtors who filed during the Great Recession, as the data collection in this report began Jan. 1, 2008. If the National Bureau of Economic Research, which officially decides when the economy enters and exits a recession, declares that the U.S. exited the recession in 2009, then next year?s class will potentially be impacted. As we reviewed this year?s data, we asked, ?How was the Class of 2008 different from the Class of 2007?? There were some noticeable differences in this year?s data. The next question was, ?Did

About the Author

Leslie Linfield is the executive director of the Institute for Financial Literacy (IFL), a national financial literacy education organization and an approved credit counseling provider with the U.S. Trustee Program and Bankruptcy Administrators. the Great Recession have any impact?? In all fairness, I have to answer, ?We don?t know, but we suspect so.? There were some changes in the rate of responses in the ?Causes of their Financial Distress? category, but nothing we can definitely point to and say ?a-Ha!? My academic colleagues are invited to do deeper research into this question, and our door is open to your research. For those who want to skip the foundational stuff, you can skip to the subhead ?Class of 2008.? T h e I F L k n e w b a c k i n e a r l y 2005 that it would seek approval to provide the pre-filing budget, credit

Consumer Corner

counseling 1 and predischarge financial management instructional courses 2 in all 94 judicial districts. 3 This presented a unique opportunity for the collection of large amounts of data on both prospective debtors (credit counseling clients) and actual debtors (education clients). As we designed the programs a n d d e l i v e r y m e t h o d o l o g y , w e integrated data-collection instruments that would dovetail into our delivery of service. The challenges of this project were great, as we had less than six months to build a brand-new program from scratch. We needed to determine what questions to ask, and for that we went to the existing body of research. For longtime Journal readers, you may know that the existing research on consumer demographics has been limited. The primary reason is that most researchers have only had the 1 11 U.S.C. §111(a). 2 11 U.S.C. §§727(a)(11) and 1328(g)(1). 3 Of these, 88 districts are covered by the U.S. Trustee Program. North Carolina, Alabama and their six respective judicial districts are under the authority of the individual Bankruptcy Administrators (BA). bankruptcy petition to rely on, and that which is not asked for is not given. The schedules currently do not request or require a debtor to disclose age (it can be voluntarily provided on Schedule I), ethnicity, educational attainment or marital status. (The ?marital status? block only asks if you are married or unmarried on Form 22A. One can presume from a joint petition that a couple is a man and a woman, as same-sex couples are not allowed to file a joint bankruptcy petition at this time). Current employment status also cannot be determined, nor can the underlying causes for the consumers? financial distress. With these parameters, we set out to design the survey tool. The IFL provides counseling and education services in-person, 4 by telephone and online, and a survey gathers demographic information from the client at the beginning. If a client receives both services, the survey information is only gathered once. Clients taking a counseling or education program via the Internet for the first time are presented with the ?Client Survey? page before proceeding. Here, they read the following statement: Before we begin your session, we would like to collect some information from you. This information will not be used to personally identify you in any way. The information will be used for statistical research purposes as we evaluate our program. Should clients choose not to complete the survey, they simply move to the next page and begin their program. Clients receiving services by telephone or in-person are informed by counselors that the IFL is conducting ongoing research, and that clients are not required to answer the questions. Counselors also explain that the information gathered will have no impact on the outcome of the counseling or education session. 4 In the District of Maine. continued on page 74 14 December/January 2010 ABI Journal

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