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The new financial regulatory overhaul is designed to protect consumers, but a 2005 bankruptcy law that can be particularly impoverishing for divorced women has been left intact.

Little Room to Sustain Setbacks

"The problem with Chapter 13 filings is that there is little meat on the bone of these people's budgets to sustain another setback," said Gerdano. "If they lose a job or get sick during the three to five years of the plan, they are in even worse shape financially because it is very difficult to convert a Chapter 13 bankruptcy into a Chapter 7 at that point."

The more stringent Chapter 13 category may be causing homeowners with subprime mortgages to walk away and let their homes go into foreclosure rather than filing for bankruptcy to protect them, notes the National Association of Consumer Bankruptcy Attorneys. The organization has lobbied Congress to allow bankruptcy judges to modify mortgages on a person's primary residence.

Women are almost twice as likely as men to hold subprime mortgages, which carry higher interest rates than traditional mortgages. Many of these women cannot afford to pay their mortgages after bankruptcy because the rates readjust every few months and add hundreds of additional dollars to their monthly payments.

"For many women, owning a home is critical for their retirement because they lack pensions and have little savings," said Ebert, also a partner in the Ebert law firm in Hurst, Texas.

Deborah Thorne, associate professor of sociology at Ohio University in Athens, conducted a 2007 study of bankruptcies with researchers at Harvard University in Cambridge, Mass.

It found that 62 percent of all bankruptcies in the United States were linked to medical bills. There were no gender-specific findings.

Law Based on Erroneous Assumptions

The 2005 bankruptcy law, representing the largest overhaul in the code in 27 years, was portrayed by supporters as a way to restore personal responsibility to the system by making it more difficult for compulsive shoppers, speculators and other unscrupulous individuals to escape their creditors.

"The law was based on an erroneous assumption," said Thorne. "Proponents like Sen. Charles Grassley (Republican of Iowa) believed that the number of personal bankruptcies had skyrocketed to 1.5 million in 2004 because individuals who had squandered their income on designer clothes, fancy cars and luxurious vacations were using bankruptcy to leave their creditors in the lurch. But that's not the case. People seek bankruptcy as a last resort because they have lost their financial footing through no fault of their own."

Thorne said other factors like the loss of a job or a family breakup played a part too.

"The vast majority of the 2,314 women and men in our study were middle class individuals who had college educations, owned homes and had taken all the right steps to ensure their financial futures," she said.

The stress of living with these debts and recovering from bankruptcy is excruciating, especially for women who typically manage the family finances, Thorne said.

She and her research team found that people who go through bankruptcy developed insomnia, battled headaches or lost their hair; others suffered heart attacks and strokes.

Thorne places little hope that the new financial regulations will do much to protect consumers from the perils of excessive debt that is hard for many to extinguish through bankruptcy proceedings.

"Unless America takes steps to create well-paying jobs with benefits and establishes programs to make education and housing more affordable," said Thorne, "tens of thousands of vulnerable people will have no choice but to incur crushing debts that lead to bankruptcy."

Would you like to Comment but not sure how? Visit our help page at http://www.womensenews.org/help-making-comments-womens-enews-stories.

Sharon Johnson is a New York-based freelance writer.

For more information:

American Bankruptcy Institute:
http://www.abiworld.org

National Association of Consumer Bankruptcy Attorneys:
http://www.nacba.com

Center for Responsible Politics:
http://www.opensecrets.org

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