Why Middle-Class Families Are Going Broke

By Karen Springen
Newsweek
Updated: 2:17 p.m. ET Aug 31, 2006
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Aug. 31, 2006 - Last year, the number of personal bankruptcies ballooned to two million as people rushed to beat last deadline for a new law that made it harder and more expensive for consumers to declare themselves broke. The increase was followed by a slump, with the Administrative Office of the U.S. Courts reporting this week that personal bankruptcies for the year ending June 30 fell to 1.45 million—the lowest level in five years.

Does that mean Americans are in better financial shape? Not quite, according to bankruptcy expert Elizabeth Warren, a professor of law at Harvard University and co-author (with her daughter) of "The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke" (Basic Books; September 2003) and "All Your Worth: The Ultimate Lifetime Money Plan" (Free Press; March 2005.) NEWSWEEK's Karen Springen spoke with Warren about why she thinks the current legislation helps lenders at the expense of ordinary Americans and how the nation can get out of a debilitating cycle of debt.