Web prepared, posted and Copyright © March 5, 1998, American Bankruptcy Institute.

March 3, 1998

Samuel J. Gerdano
Executive Director
American Bankruptcy Institute
44 Canal Center Plaza, Suite 404
Alexandria, VA

Dear Sam:

On three occasions during the ABI-sponsored consumer bankruptcy debate, credit industry lobbyist George Wallace inaccurately cites a book we wrote with Dr. Teresa Sullivan (As We Forgive our Debtors: Bankruptcy and Consumer Credit in America) for the notion that 10% of debtors "can pay." The error in that citation transcends its mere inaccuracy. It distorts the central point of our findings and leaves us wondering if the made-to-order studies aren't better for political purposes than serious works of scholarship, because a real scholar makes some effort to be fair and fairness can be manipulated.

Unlike some of the recent made-to-order studies, we went to some trouble to expose our data fully so that readers could draw their own conclusions. In that spirit, we included analyses from extreme perspectives. Mr. Wallace cites one such analysis, in which we assumed that debtors would try to pay all their debts while living on a near-poverty budget, with a floor of 60% of their income. Thus a family with a $40,000 income and, say, $30,000 take-home pay would try to live on $18,000 a year for three years while paying their debts. On that extreme basis, we found 9% who might be able to pay, ignoring a host of realities like instability of income, additional medical expenses, etc. Mr. Wallace converts this extreme case--almost a reductio ad absurdum--to a conclusion that 10% can pay.

We were--and are--pretty sure the average American wouldn't buy such an extreme idea. We did think some people might favor a plan forcing debtors to live on a low budget with an 80% floor, so that family would struggle along on $24,000 a year while trying to pay their debts in three years. On that basis, we found 3% who might be able to do it. We emphasized in our book that these "can pay" debtors are only candidates for that label and that a closer examination might eliminate some or all of them. Most people might not want to force them all to pay, given a child with paraplegia from the accident and Dad laid off after twenty years at the company, and so forth, although at least some of that 3% "could pay." To cite us as saying 10% "could pay" is lying with a half-truth.

Sincerely yours,

Elizabeth Warren
Leo Gottlieb Professor of Law
Harvard Law School

Jay L. Westbrook
Benno C. Schmidt Chair of Business Law
University of Texas School of Law