7 ways to fight off bankruptcy

By MP Dunleavey

Editor's note: Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the ongoing quest of the Women in Red every other Wednesday in Dunleavey's column on MSN Money.

Over the past two decades, bankruptcy rates among women have been rising at a frightening rate.

Some 69,000 women filed for either Chapter 7 or Chapter 13 bankruptcy in 1981. By 2001, according to research by Harvard law professor Elizabeth Warren, women filing independently or as part of a couple numbered close to a million.

As part of a small, brave band of Women in Red who struggle against the financial forces of darkness in the world, I have to ask why -- and what can we do to protect ourselves?

A lack of financial stability

Obviously, being female doesn't predispose you to bankruptcy any more than, say, having brown hair. But the research seems to indicate that women are more likely to end up in certain economic straits that can lead to bankruptcy.

Contrary to the stereotype that those who file for bankruptcy have irresponsibly spent themselves into a hole, nine out of 10 women were forced into bankruptcy by a job loss, medical emergency or divorce.

These are the same factors that send many men into bankruptcy, says Warren, co-author of "All Your Worth." But a woman's hold on economic security tends to be more tenuous to begin with -- particularly if they have children.

Warren's data, based on Chapter 7 and 13 filings, make it scarily clear:

• For unmarried men, the bankruptcy rate was 6.3 cases per thousand.

• For unmarried women, it was 7.2 cases per thousand.

• For married couples without children, it was 7.4 cases per thousand.

• For married couples with kids, the rate about doubles to 15.3 per thousand.

• And for single women with kids, the bankruptcy rate nearly triples to 21.3 cases per thousand.

Single women alone comprise almost 40% of all bankruptcy filings.

Bankruptcy's red flags

What's going on? "Women often start off with lower incomes, and they're particularly vulnerable after a divorce, when they're typically bearing the brunt of the child-care burden," says Travis Plunkett, legislative director of the Consumer Federation of America.For example, Marian, the newest member of the Women in Red, has not filed for bankruptcy. But she has many of the classic warning signs:

• She's a single mom. When Marian's husband left eight years ago, she was left to raise her three children without any child or spousal support. "Divorce isn't a picnic for men or women," says Warren, "but the economic strain falls disproportionately hard on women," who are often left to care for children or aging parents. "They have every cost that married couples do, and they're trying to do it on one income."

• She didn't have a steady income. Also, like a lot of moms with very young children, Marian worked from home, helping out in her husband's business. In the event of a split, women without a full-time job or the skills to get one are the most financially unstable, says Harlene Miller, a bankruptcy lawyer in Santa Ana, Calif. "They (don't) have a significant employment base so they're less able to get out in the marketplace to start supporting themselves."

• She wasn't paying attention to money matters. With three children and a struggling business, it's no wonder Marian pushed aside the bigger financial questions -- like how they would repay the family loans that floated their enterprise. Luckily, their families forgave those debts, but many women pay a price for keeping their heads in the sand, says Miller. She cites a client whose husband died suddenly at age 50, leaving her with over $100,000 in credit card debt that she'd had no idea about. "It's imperative for all women, as a matter of survival, to be involved in the family's finances," she says.

• She took on more debt than she could handle. In her 17 years as a bankruptcy attorney, Miller has seen women pile up tens of thousands of dollars in credit card debt to get by. Marian did exactly that, tapping the equity in her home (which had been paid off) to borrow $100,000. She used the money to pay off a personal loan and medical bills and to cover her son's tuition at a special-needs school.

• Many women don't adjust their lifestyle quickly enough. This is less true of Marian, who used her college accounting degree to get a job after the divorce and recently started her own business. But Warren says many women are vulnerable to going broke because they don't face the realities of what it takes to survive on one income and adjust speedily.

Nor would women's risk of bankruptcy be lowered much if they got more support from their ex-spouses, Warren says. "The increased cost of raising children has far outstripped the increase in child support."

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