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
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