New Faces in Bankruptcy Court: The Middle-Aged

Just when many baby boomers expected to be settling into their comfortable homes earned from a lifetime of hard work, they’re finding themselves in bankruptcy court instead.

The reasons are numerous; the circumstances complicated. Bankruptcy attorneys are accustomed to helping young people who have overextended themselves with credit card debt and the expenses of starting a new home and family. The faces they see now, however, are lined with a history of hard work and the burden of caring for both their children and their parents. A shaky job market and soaring medical costs have also taken their toll on the middle-aged.

"These people didn't take their credit cards to Atlantic City," says Gabriel Del Virginia, a New York bankruptcy attorney. "It's largely because people lost their jobs or had a catastrophic illness."

According to the Wall Street Journal, the Consumer Bankruptcy Project says that on a per capita basis, older people are now the most likely to file for bankruptcy. The study surveyed 2,400 bankruptcy filers in 2001 and 1991. In 2001, per capita filings of individuals ages 45 to 54 increased 58 percent, to 11 per thousand.

"The curve is moving to the right," says Elizabeth Warren, a professor at Harvard University Law School, who co-authored the study. "It reflects a more frightening reality for a wide swath of middle-class America."

Warren told the Journal that heavy family responsibilities play a role in the number of bankruptcy filings. People are living longer, so middle-age Americans are now eight times as likely to have a living parent as previous generations, she says. And since many people waited to have children later in life, tuition bills come later too.

Middle-age consumers have also been victims of years of aggressive credit card marketing, but relying on plastic to cover expenses in tough times has only made things worse.

In recent years, the credit-card industry has begun raising interest rates when a person's payments are late, or when their total debt passes a certain level. One woman who filed for bankruptcy due to medical expenses of kidney failure, had interest rates in the 11 percent range until she racked up a lot of debt. Now, the rates are 25.9 percent. The late fees are as high as $285 a month.

Personal bankruptcy attorneys said middle-age filers make a few common mistakes, mainly waiting too long to seek help. Homeowners often try to pay down their credit-card bills by taking equity out of their homes, but in a personal bankruptcy filing, credit-card debts and other unsecured debts are wiped out. Home-mortgage payments aren't. Cashing out a retirement plan to cover debts could backfire too, since retirement plans are protected in bankruptcy.

Mounting credit-card debt led Mark Taylor, 43, to file for bankruptcy early last year. After he lost his job and turned to consulting, he saw his work evaporate as the economy slumped. He started using credit cards to cover expenses.

Now he keeps a credit card only to rent cars. Learning to be debt-free "is a liberation I can't even begin to describe," says Taylor, who is now working as a legal assistant at a New York law firm.

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