SPRING 2003

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Up Close and Personal
Simulation Gives Professionals a New View of Bankruptcy

Participants in the debt simulation in Memphis line up to conduct business at the “bank.” (Photos by Lyn Haralson)

By Ellen Eubank
Community Affairs Manager

Life went from bad to worse Feb. 6 when about 70 people came to the Memphis Central Library to participate in a serious game of finances. They were all there to find out one thing: Could they avoid bankruptcy?

The stakes were high, but the participants knew what they were about to do was only a game, a simulation—a program developed by the University of Tennessee Agricultural Extension Service.

The Debt Education Bankruptcy Training Simulation (DEBTS) teaches personnel from organizations and institutions whose clients are on the brink of bankruptcy about the process so that they can better serve them, said Beth Bell, extension agent.

University extension agents from western Tennessee conducted the simulation in Memphis. The Memphis Credit and Bankruptcy Collaborative and the Federal Reserve Bank of St. Louis sponsored it.

The collaborative is an association of banks, educators, legal professionals, nonprofit organizations, credit counseling agencies and others committed to reducing the high bankruptcy rate in the Memphis area. In 2001, Memphis was dubbed “the bankruptcy capital of the nation.” It had 20,296 filings that year. That figure rose about 8 percent last year. Through DEBTS, the collaborative wanted to draw attention to the problem and to help its member organizations better understand issues surrounding bankruptcy.

On the morning of Feb. 6, as participants filed into the library, they were assigned a role as a member of a “family.” Each family was advised of its current personal and financial situation and assets, such as cars and bank accounts. With assigned names like Owen and Anita Bucks, Bill and Penny Cash, Ima Spender, and Mark and Marla Moola, the participants settled in to play the game.

Before the first round of the simulation, each family was given time to review its situation and develop a plan of action. During the first round, each family had certain business to transact, including getting the children to school, visiting the bank and buying food at the grocery store. Stations representing places the family members would go to conduct their daily business were set up along the perimeter of the room. There was a bank, a school, a workplace, a grocery store and the bankruptcy trustee’s office. These stations were staffed by volunteers who tried to make the families’ experiences as true-to-life as possible.

The lessons were learned immediately and often the hard way. Most families did not take advantage of the time set aside at the beginning to review and plan. Instead, they immediately rushed to the stations to take care of business. In real life, many families in financial crisis act without a plan, too.

One “family” returned to its “home,” a circle of chairs, to find the chairs turned over and a foreclosed sign up.

One family felt the consequences of that haste in the first round. The bank foreclosed on the family’s “home,” which was its circle of chairs. When the family tried to return home, all its chairs were turned over. Carolyn Stearnes of Senior Services belonged to that family.

“We misread something and made a wrong assumption that forced us to declare bankruptcy, and that led to foreclosure,” she said. “We should have spent more time reading and discussing at the beginning.”

Bell said the reaction of that family was not unusual.

“Even though people who are going through the simulation are professionals, they respond very similarly to those in financial crisis, and they tend to panic and react without planning,” she said.

As the first round progressed, families faced realistic obstacles, such as long lines at the bank and circumstances that kept them from their jobs at the workplace. These obstacles had a spiraling effect. When members of the family missed work, they did not receive a paycheck.

The most chaotic spot in the entire room was the school. Most families had children who were expected to attend school. But as adult family members rushed to take care of business, they left children on their own to get to school. Some children were late or truant. Other children showed up at school hungry because their parents had not gone grocery shopping. These situations led to school suspensions and visits to the families from “Human Services.”

After the first round, families were given time to regroup and plan for the next round. As in round one, families in round two had to conduct certain business during the allotted time. But a new twist was added. Some families were handed “incident slips,” which detailed new obstacles, such as an emergency surgery for a child not covered by insurance. Bell said that as extension service agents wrote the program, they discovered an interesting phenomenon.

“As people got on a negative roll, they wouldn’t even lift their heads to look for other possibilities or solutions,” she said.

A family works together on a plan that will help it avoid bankruptcy.

In the third round, life got tougher. The line at the bankruptcy trustee’s office grew longer as more people saw bankruptcy as the only answer to their problems. The line at the pawnshop also grew longer, and people began to take advantage of other financial services there, such as payday loans.

Participants became immersed in their roles and felt the frustration of their situations. Words like “frustrated” and “belittled” crept into conversations.

“I would do anything just to get money to pay my bills, and I mean anything,” one person said.

Another, with her family facing foreclosure, said she thought she and her family should take their remaining money and buy a gun.

Just when everyone thought it couldn’t get any worse, the last round of DEBTS ended. During lunch, participants discussed what they felt and what they learned.

Sandra Burke, an employee of the state of Tennessee, said that for her the simulation was a creative process and that she had to figure out a new way to do things.

Two family members talk to University of Tennessee Agricultural Extension Service representatives Cathy Faust, center, and Beth Bell, with back to camera.

Others were overwhelmed by frustration and didn’t know where to go or what to do. Joe Harmon with Memphis City Schools said his family was able to avoid bankruptcy “because we worked together.” Jack Hogan of Consumer Credit Counseling Services said his family struggled between handling the financial problems and the emotional problems. Charlestine Mitchell of Lawrence Johnson Realtors was dismayed when the pawnshop offered her a loan when she couldn’t pay the bills she already had. And Eddie Batey of Hands on Memphis, who played a teen-ager in his family, said he was left to his own devices. When he came home with a stolen identity card from another family, his family cheered him instead of punishing him for theft.

Many participants said they had a fresh appreciation for the challenges their clients and customers face every day. The players in the game also had a renewed interest in addressing some of the underlying issues, such as job training and better paying jobs, that contribute to the cycle of credit problems and bankruptcy in Memphis. The need for financial education at all levels was also apparent.

Facts about Consumer Debt, Bankruptcy Compiled by the Memphis Credit and Bankruptcy Collaborative

1990—Unsecured consumer debt nationwide is reported to be $9 billion.

2001—Unsecured consumer debt nationwide is reported to be $1.7 trillion. Credit card debt now averages $8,600 per household.

2001—Bankruptcy filings in Memphis number 20,296.

2001—New York Times article names Memphis the “bankruptcy capital of the nation.”

2002—The Commercial Appeal in Memphis reports that personal bankruptcy filings in western Tennessee have increased 22 percent over the prior year.

Costs in Memphis to file a typical Chapter 7 bankruptcy are $600 to $700. Costs to file for Chapter 13 range between $1,200 and $1,300. (Attorney fees are protected in asset distributions and repayment plans.)

In Memphis, 75 percent of bankruptcies are filed under Chapter 13. This type of filing protects debtors from the collection efforts of creditors, permits individuals to keep their real estate and personal property, and provides them the opportunity to repay their debts through reduced payments. Chapter 13 bankruptcy also shows on a credit report for a shorter period of time than Chapter 7.

The primary triggers for bankruptcy are job loss, divorce and medical debt.

In 1993, about 5 percent of college seniors graduated with debt of more than $20,000. In 2000, that number was 33 percent. The average student credit card debt was $2,750 in 2000.

A lack of education about financial matters contributes to people getting and staying in a financial crisis.

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