At the end of his book's harrowing account of mortgage mistakes and credit card crises, Edmund Andrews
writes:
"While our misadventure had certainly been more extreme than those of
many other Americans, our situation was not all that unusual." And
indeed the book reads like the story of an American Everyman, easily
sucked in to the alluring world of easy credit as he struggled to blend
a new family. The terrifying implication is that it could happen to
you--to anyone who leads with their heart and not their head.
But
en route to that moral, it turns out the story has been tidied up a
little. Patty Barreiro, Andrews' wife, has declared bankruptcy twice. The
second time was while they were married, a detail that didn't make it
into either the book or the excerpt that ran in last Sunday's New York
Times Magazine.
Andrews' desire to shield his wife is
understandable--hell, laudable. No decent person wants to parade their
spouse's financial trouble in front of the world. But this is material
information that changes the tenor of his story. Serial bankruptcy is not a creation of the current credit crisis, and it doesn't just happen to anyone, particularly anyone with a six figure salary.
In September 1998,
California bankruptcy court records indicate that Patty and her first
husband declared bankruptcy. The financial statement they filed with the court indicated family income of $174,000 in 1996, $87,000 in 1997, and $126,000 in the first nine months of 1998. The income fluctuations are not surprising, given that her husband was in the film production industry. By the time of the filing, the couple owed about $30,000 on 8 credit cards, over
$200,000 in back taxes, and almost $15,000 in private school tuition,
as well as substantial car and mortgage payments.
In 2007, nearly as
soon as she was eligible, Patty Barreiro filed again in Montgomery
Country. When called for comment yesterday, Andrews was unavailable,
but there is no question that it is his wife: his income and
occupation are prominently featured in the docket.
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.
Ms. Barreiro filed separately from
Andrews, and had to amend the filing to include Andrews' income after a
complaint from a creditor who wanted to force her into a Chapter 13
repayment plan. She filed when her income was at rock bottom,
consisting only of unemployment; the timing may have just excluded having to declare $5,000 in freelance editing income Andrews mentions in the book. And she shed what appear to be jointly incurred
debts, such as a Comcast account. Comcast does not service the address
listed on the 1998 filing, but as I can attest (to my sorrow), it is
the main cable provider in Silver Spring, where she moved to live with Andrews in 2004.
Serial bankruptcies
can, of course, happen to anyone with enough bad luck. But they usually don't. And when they do, they usually hit people with marginal incomes that leave no margin for error in the budget. Most people, even in LA, are able to build a sustainable budget out of an income in the low six figures.
Moreover, pesky bad luck isn't
really the picture painted by either filing. Rather, Ms. Barreiro seems to have
spent most of the last two decades living right up to the edge of her
income, and beyond, and then massively defaulting. If you structure your finances so that absolutely everything
has to go right, it's hard to blame the mortgage company when you don't quite make it.
Andrews
has been admirably open about many of the poor decisions and the
wishful thinking that led him deep into debt. Nonetheless, he has laid much of the blame onto irresponsible bankers and mortgage brokers. The missing
bankruptcies substantially undermine this basic narrative arc of
Andrews' story. Particularly in his book, the bankers are the villains, America's
current troubles are the inevitable denouement of their maniacal greed,
and the Andrews household stands in for an American public led, by
their own greed and longing and hopeful trust, into the money pit.
It's hard to argue that Ms. Barreiro was forced into bankruptcy by crazed
subprime mortgage lenders in 1998. Greedy bankers certainly didn't keep her and
her first husband from paying their taxes.
Of course, her first
husband was involved too--there's no way of knowing who was at fault in
the first case. If indeed anyone was: there may have been a business failure or some other mitigating factor. As I mentioned, I tried to reach Andrews for comment several times, leaving messages on both his office and cell phone that made it clear I was reporting for The Atlantic, and that I wanted to speak to him about Patty's bankruptcies. For whatever reason, he has not called me back, and so I don't have his (her) side of the story to tell you.
Of course, no matter what he told me, it wouldn't let the bankers off the hook. Whatever Patty Barreiro's spending history, it's still true that she and Andrews were able to dig themselves in a lot deeper because of fantastically easy credit from a variety of fantastically stupid bankers, most of whom now seem to have gone fantastically bankrupt. But while the willing lenders amplified the problem, given Ms. Barreiro's history, it seems unlikely they were at the root of it. It's hard to see them as victims either of those bankers, or a mass mania.
Andrews married a woman with a lengthy history of debt and spending problems. Serial bankrupts were
getting into trouble long before there was a credit bubble, indeed long
before there were credit cards or 30-year self-amortizing mortgages. In fact, the literary history of America is littered with them; we owe much of Mark Twain's later work
to his catastrophic financial mismanagement.
Credit encourages people to spend more by separating the pain of
payment from the pleasure of consumption. For many, maybe most,
people, this means at least one brush with unpleasantly large
overdrafts or credit card balances. And for a small subset of folks,
that easy accumulation leads to real, often repeated, trouble. Those
kinds of problems can't be fixed with tighter mortgage lending
standards or a 500 basis point uptick in the Fed Funds rate. And they aren't the main problems facing most Americans today.
