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Survey: Personal bankruptcies topped 1 million in 1996

March 5, 1997

LOS ANGELES (AP) _ The number of Americans filing personal bankruptcies last year surged past 1 million for the first time, intensifying criticism that consumers are taking court protection from creditors too lightly.

There were 1,242,700 bankruptcy filings last year, according to a survey of every U.S. bankruptcy jurisdiction by CDB Infotek, a Santa Ana-based public records research firm. That’s up 35 percent from 918,964 in 1995.

A fraction of those filings were commercial liquidations, typically small businesses, CDB found. The rest were personal bankruptcies.

The majority were personal property liquidations or Chapter 13 filings, which provide a shield while debtors and creditors work out repayment plans from available income.

Visa USA, whose members lose billions of dollars a year to bankruptcy filings, also checks the bankruptcy courts. The credit card company’s studies showed consumer bankruptcies rose 26.6 percent, from 883,000 in 1995 to 1,117,000 last year, said Kenneth Krone, senior vice president of Visa USA.

``We’re concerned that people are rushing into bankruptcy without looking at alternatives,″ Krone said.

Test advertising aimed at getting consumers into credit counseling programs has shown promise and is being expanded, he said.

The surveys used different methods of screening the filings, which accounts for sharply different results from some states. CDB’s survey, for example, had Mississippi filings up 39.5 percent, compared with Visa’s finding of a 17.2 percent jump.

But both surveys pointed up a basic trend: Bankruptcies are up.

While the rate has tripled since 1981, the latest surge was greater than many experts had expected. Visa issued a forecast last July of 1 million consumer bankruptcies in 1996 and 1.1 million this year.

Credit that’s easier now to get _ and often pitched to consumers by direct mail and over the telephone _ is among factors often cited as driving the bankruptcy rate up, as is a lessened social stigma attached to bankruptcy.

``You can actually now get a lawyer who will file a bankruptcy over the Internet,″ said Rick Rozar, CDB Infotek’s chief executive. ``That all makes people feel like it’s a more viable alternative.″

Credit card companies play down the extent to which their encouragement of consumer debt has contributed to rising personal bankruptcies.

Testifying before the National Bankruptcy Review Commission pushing for creation of uniform bankruptcy laws nationwide, Lawrence Chimerine, a consulting economist for MasterCard International, attributed the increase less to rising debt levels than to legal and social changes and outright abuse.

``Personal bankruptcy is increasingly becoming a first option, rather than the last resort it was intended to be.″

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