The Two-Income Trap - Elizabeth Warren [4]
Cutting back was hard to do because they weren’t really spenders in the first place. Most of their money went for the basics—the mortgage, car payments, day care, and food on the table. They hadn’t realized just how tight their budget really was until they missed a mortgage payment three months after James lost his job. Both had been raised to pay their bills, and as an accountant, Ruth Ann had seen what happened to people who didn’t. But they held on to the belief that their situation was temporary.
Within six months they were two payments behind on the mortgage. To raise cash, they had had two garage sales; then they sold the antique dining set that James had refinished. Ruth Ann quietly asked family and neighbors if she could prepare their tax returns for $50 apiece.
As Ruth Ann and James learned, the dance of financial ruin starts slowly but picks up speed quickly, exhausting the dancers before it ends. Few families have substantial savings, so they usually run out of cash within a month or so. Soon the charges start mounting up for the basics of life—food, gasoline, and whatever else can go on “the card.” When there still isn’t enough to go around, the game of impossible choices begins. Pay the mortgage or keep the heat on? Cancel the car insurance or the health insurance? Meanwhile, interest and late fees have piled on, making everything more expensive. Ruth Ann and James got a small reprieve from family. James’s parents kicked in $4,000 and Ruth Ann’s brother lent them $1,500. But these temporary infusions of money were just that—they covered the minimum payments for a few months, but they didn’t begin to provide a way out of the hole. Before it was over, Ruth Ann had taken to parking the station wagon behind the elementary school and walking the six blocks home, figuring the bankers wouldn’t repossess her car if they couldn’t find it.
A neat stack of manila folders on Ruth’s bedroom bureau told the story of how quickly their carefully planned lives had unraveled. The first folder held a letter from the county threatening to foreclose on their home for failure to pay taxes, along with past due notices from the mortgage company. Other files held a variety of bills totaling $12,000, and Ruth Ann’s carefully documented IOUs to their families.
The end for Ruth Ann and James came with a bang. One evening Ruth Ann walked into the living room to hear Dexter, now seven, on the phone, talking to a bill collector. “My mom doesn’t do that, and you shouldn’t call here any more. Leave us alone.” When he heard her enter the room, he whirled around, his eyes wide. He slammed down the phone and ran out of the room. Ruth Ann wasn’t sure whether Dexter was afraid or angry, but she knew this had to stop.
Ruth Ann was more financially sophisticated than most women. As an accountant, she knew that it was time to see a bankruptcy attorney. Filing for bankruptcy would give them some time to repay their bills, and it would prevent the bank from foreclosing on their home, at least for a few more months. It would also ensure that Dexter wouldn’t have to answer any more collection calls. That night Ruth Ann told her husband what they needed to do. James never said a word. He just walked out to his pickup truck, sat in the front seat, and cried.
One in Seven
Ruth Ann and James didn’t know anyone at their church or at work who couldn’t pay their utility bills or make their car payments, let alone someone in so much trouble they would have to file for bankruptcy. Or at least, that’s what they thought.
In fact, Ruth Ann and James probably knew plenty of families who were in just as much trouble as they were. The odds were certainly in favor of it. Over the past generation, the number of American families who have found themselves in serious financial