"Busted" Saga Continues...Megan McArdle Responds To NYT's Ed Andrews


The Atlantic’s Megan McArdle and New York Times reporter Edmund Andrews don’t appear to be on speaking terms, but they’re having quite a conversation. 

After McArdle revealed that Andrews had left out of his money-marriage-mortgage memoir “Busted” the fact that his wife Patty had declared bankruptcy twice–including once in the middle of the events in the book–Andrews responded on PBS’s site.  Now, McArdle has responded to Andrews response.

While we respect Andrews’ desire to try to protect his wife (and, possibly, his marriage), McArdle’s winning this one. 

Given that Andrews’ relationship with his wife and their divergent attitudes toward their money woes were at the centre of his story, it is impossible to believe that, as Andrews argues, his wife’s bankruptcies aren’t relevant here.  This is mainly a story about two people, their relationship, and their attitudes toward money, not about sub-prime mortgages.

If you’re new to this story, start here >

Then read what McArdle discovered >

Then read Andrews’ response, which we’ve reprinted below.

Then read McArdle’s response, which follows Andrews’.

Here’s Andrews’ response to McArdle’s revelation of the details he left out.

It is hard to believe that anybody would accuse me of trying to  airbrush a story in which I recount the cringe-inducing details of my calamitous plunge into junk mortgages.  

But Megan McArdle, a blogger for the Atlantic, accuses me of omitting crucial information: namely, that my wife, Patty, was involved in two bankruptcies, one in 1998 with her former husband; and one in 2007, while she was married to me. McArdle says this is “material information that changes the tenor of the story,” and then accuses Patty of “serial bankruptcy.”

These bankruptcies did occur, but they had nothing to do with our mortgage woes.   They were both tied to old debts from before we were married or bought a house.  They had nothing to do with my ability to get a mortgage; nor did they have anything to do with our subsequent financial problems.

Since Patty had been so brave in letting me tell our own story so candidly, I wanted to spare her the public exposure on these older woes. But that is now impossible, so here is the story:

The first bankruptcy in 1998, five years before Patty and I got together.  It occurred because Patty’s former husband, a producer of TV commercials in Los Angeles, didn’t file income tax returns for five years.  Patty, who was a stay-at-home mum and wasn’t earning money, was blindsided.  She had been signing returns, but he hadn’t actually been filing them.  Because her husband’s business income was reported on their personal tax returns, she had to join him in the bankruptcy filing.

All that happened in 1998, and it obviously had nothing to do with the story in Busted. It never even occurred to me to mention it.

Patty’s second bankruptcy stemmed from a loan she received from her sister, while Patty was still living in Los Angeles.  At the time, she was caring for four children, working for very modest pay, and receiving almost no child support from her ex-husband.  (Despite multiple court orders, he remains chronically delinquent on untold thousands of dollars.)

When Patty couldn’t repay, her sister followed her east and sued her. I offered to pay off the loan by withdrawing money out of my 401k, but I wasn’t allowed to because the purpose didn’t qualify as a “hardship.”  Without an alternative, Patty had no choice but to seek bankruptcy protection.

None of this has any connection to our story. It had nothing to do with Patty being a spendthrift, which she isn’t.  It had no bearing on my ability to take out a mortgage, and it had nothing to do with our financial problems.

Fortunately or unfortunately, BUSTED is a simple story: we took out a mortgage we couldn’t afford, earned less than we hoped and couldn’t bridge the gap.

And now McArdle’s:

I appreciate Mr. Andrews’ candor, but I disagree that this had nothing to do with his story.

  • I’m not “accusing” Ms. Barreiro of serial bankruptcy:  she has filed bankruptcy basically back to back, which no one is disputing.  That is serial bankruptcy.
  • Patty Barreiro’s first bankuptcy does not merely clear past tax debts–indeed, it’s really very difficult to shed past tax debts in bankruptcy.  They also discharged $47,655.37 in credit card debt, $4701.10 in past medical bills, $14,303 in tuition to Campbell Hall, a Los Angeles private school, and a few other miscellaneous bills.  I don’t have time right now to look up what the disposition of their debts to the IRS for the 1996-98 tax years was, but I suspect they ended up paying the $70,000 they owed.  Frankly, given what Edmund Andrews’ says, I’m surprised they got any of their tax debt discharged:  as I understand it, it’s nearly impossible to discharge tax debts due to fraud.
  • Patty Barreiro’s second bankruptcy does not merely clear a lawsuit.  The value of the settlement was $29,000.  The total vale of the unsecured claims discharged was $55,313, inclding almost $8,000 for legal services, almost $10,000 in medical bills, $1200 in phone bills, $1100 owed to Comcast, and $5400 in credit card debt.  If the purpose of the bankruptcy was merely to clear the lawsuit settlement, she could have reaffirmed the other bills, though of course, in practice no one ever does that–if you’re going to declare bankruptcy, you might as well get a really fresh start.   It’s hard to fault her for clearing the debts, but the fact remains that nearly half the obligations she discharged were not part of the settlement.
  • Andrews is saying that the lawsuit was the driving factor behind the bankruptcy, and that the other unsecured debts are therefore somehow irrelevant.  But neither the book nor the bankruptcy filing indicate the means to clear the other unsecured claims without Chapter 7; by her own worksheets, she had very little income and their joint income was exceeded by their allowable expenses.  Plus, of course, they’re awaiting foreclosure now.  If she hadn’t declared bankruptcy, where would they have gotten the $25,000 to pay off the medical, legal, credit card, and utility bills she discharged?…
  • That kind of living up to the edge is, indeed, exactly what Andrews describes happening in his marriage.  The bankruptcies suggest that this may be a symptom of a pre-existing problem, rather than the easy credit of the past five years.
  • Andrews seems to now be arguing that the Chapter 7 filings are not relevant because they didn’t affect his ability to get a mortgage.  But of course the article and the book is not just about him–rightly, because unless your marriage is pretty dysfunctional, it’s a financial partnership.  The two bankruptcies seem to reveal that one partner has demonstrated a historic inability to live within their means.  So though the bankruptcies don’t tell us anything about their ability to get a mortgage on their house, they may tell us quite a bit about their willingness to take on a mortgage.  This decision is at least as important as the bank’s.  I’m sure banks would have given me all kinds of stupid mortgage loans in 2004, but I didn’t avail myself of the opportunity.

Read McArdle’s full response here >

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