Friday, Aug. 16, 2002 | 11:12 a.m.
SUN STAFF AND WIRE REPORTS
Americans filed for personal bankruptcy at a record pace in the second quarter, figures from the Administrative Office of the U.S. Courts show.
Personal bankruptcies totaled 390,991 between April and June, a 5.9 percent increase from the previous three months and the most for any quarter, the courts office said. That brought the number of such filings over the previous 12 months to an all-time high of 1.47 million.
Las Vegas-area personal bankruptcy filings rose 10 percent to 7,364 from 6,669 in second-quarter 2002, while business filings dropped 19 percent, the U.S. Bankruptcy Court in Las Vegas reported.
The number of Chapter 7 personal liquidation filings in the Las Vegas area jumped to 5,095 for second-quarter 2002 compared with 4,672 in the same period in 2001, while the number of Chapter 13 filings rose to 2,269 in second-quarter 2002 compared with 1,997 in the same period in 2001.
Americans had a record $7.9 trillion in personal debt -- including auto loans and home mortgages -- at the start of the second quarter after purchasing cars, clothing, and other goods at a breakneck pace in the second half of the 1990s. The repayments are coming due as unemployment is rising amid a slow recovery from recession.
"This is the debt hangover from the 1990s," said Sam Gerdano, executive director of the American Bankruptcy Institute, a research group whose members include lawyers, accountants and consumer advocates. "At some point you have to pay the bill and if that comes during a period when the economy is softening, it makes it that much harder."
The jobless rate rose to an almost eight-year high of 6 percent in April and in July was 5.9 percent, Labor Department figures showed. The record personal debt levels in the first quarter surpassed the $11.1 trillion total in the final three months of 2001, according to Federal Reserve statistics.
U.S. business bankruptcy filings declined 0.8 percent in the second quarter to 9,695. That was the second straight drop and left the total below the 10,300 filings in the second quarter of last year. So far this year, 142 publicly trade companies have applied for bankruptcy, including WorldCom Inc., whose $107 billion filing in July was the largest ever, based on data compiled by Bankruptcy Data.com.
Las Vegas-area business bankruptcies fell from 121 in the second quarter of 2001 to 98 in the 2002 quarter.
The collapse of unprofitable Internet and telecommunications businesses and a recession that started in March 2001 led to a record 257 filings by public companies last year, including the second-largest ever by Enron Corp. Some bankrupt companies failed after taking on debt to finance acquisitions, a strategy that backfired when the economy slowed.
Separately, opponents of legislation making it tougher for consumers to escape their debts in bankruptcy court say they are pessimistic about their chances of blocking the bill when it comes up for a vote next month.
"It does look like they're pretty far down the track and they are going to enact this legislation," Travis Plunkett, top lobbyist for the Consumer Federation of America, said of the measure sought by creditors such as MBNA Corp. and Citigroup Inc.
Consumer groups and labor unions are visiting lawmakers in their home states this month, trying to persuade members to reverse their positions on a measure that originally passed the House by 306-108 and the Senate by 82-16.
Those groups say that creditors are largely to blame for a record number of personal bankruptcies by extending too much credit at high interest rates. The Consumer Federation released a report Thursday that shows lenders on average mailed 50 credit card solicitations per household in a 12-month period ending March 31.
Supporters of the legislation say that the increase in bankruptcy filings shows that the current system is being exploited by people who borrow heavily and then try to escape repayment.
The undergoing final revisions in Congress would rewrite the federal bankruptcy code to require more borrowers to pay back a portion of what they owe, rather than canceling debts through court proceedings.
A similar bill made it to the final stages before dying in the Senate in 1998. It passed both chambers in 2000, only to be killed when then-President Clinton refused to sign it after Congress recessed.
The Consumer Federation and its allies are targeting Democrats and select Republicans in the Senate, where support is softer than in the Republican-led House, Plunkett said.
House and Senate negotiators last month resolved differences on competing versions of the legislation, a victory for credit card issuers who have pushed since 1997 for a rewrite of law governing debtors' obligations.
The compromise hit a snag in the House that led Republican leaders to cancel a vote before the August recess.
David Liddle, a spokesman for the Financial Services Roundtable, said supporters are confident House Republican leaders can resolved those differences next month.
Bloomberg News contributed to this story.
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