Consumer & Business Bankruptcies on the rise

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Consumer and business bankruptcies up sharply in first quarter

By PAUL WENSKE - The Kansas City Star Date: 05/23/01 22:15

Consumer and business bankruptcies in the first quarter jumped 17.5 percent nationally compared with a year earlier, reflecting the second-biggest surge in quarterly filings.

Filings rose to 366,842 from 312,335, according to the Administrative Office of the U.S. Courts. The increase was the largest since the second quarter of 1998, when 373,460 cases were filed.

Kansas recorded the second-highest percentage increase, according to the American Bankruptcy Institute, which listed the five states reporting the biggest increases from last year.

Legal officials attributed the increase to the slumping economy, crippling debt burdens carried by low-income consumers and some people's desire to file before a tougher bankruptcy law, pending in Congress, takes effect.

"The economic slowdown beginning last fall, combined with historic high levels of consumer debt, mean that filings will reach a new peak this year," said Samuel J. Gerdano, executive director of the bankruptcy institute.

The Administrative Office of the U.S. Courts also reported that total bankruptcy filings in the 12 months preceding March 31 edged up 0.5 percent from a year earlier, to 1,307,857 from 1,301,205.

The increase reverses a trend of the last few years in which bankruptcies declined. The figures are still lower than the 10-year high of 1,423,128, measured as of March 31, 1998.

Kansas reported 3,157 filings, which the bankruptcy institute said was a 57 percent increase from a year earlier, placing the state second. Utah showed a 118 percent increase. Other areas with big increases were Oklahoma, the Mariana Islands and Colorado.

Missouri's two federal court districts together reported 7,257 filings for the quarter. The institute did not report further statistics on Missouri.

Tom Harrison, publisher of Lawyers Weekly USA, a national legal newspaper, suggested that "people who are in debt are rushing to the courthouse, trying to get their case in before the rules change."

Legislation that would bring about the biggest revamping of bankruptcy law in 20 years and make it harder for consumers to shed their debts has stalled in Congress. The House and Senate each approved bankruptcy changes two months ago, but the legislation has been stalled by party differences.

Robert Berger, an Overland Park bankruptcy lawyer, said anticipation of the law change might be playing a part in the national increase. But most people he sees "have a real need because of increased debt burdens," he said.

Low-income families became overextended because of loose lending policies of banks and credit card companies, he said. "These people had been able to service their debts, but now a lot of them have reached a breaking point," he said. "I think the economy is certainly a big part of the picture."

Berger said some people who lost large sums in the stock market slump also were filing for bankruptcy.

"They bought on margin, and when the margins were called, their assets were depleted," he said. "Some of these people had large credit card debt in relation to their stock securities. Some people borrowed on their credit cards to play the stock market."

Business failures also are contributing to the increase, he said, as entrepreneurs who have gone bust are filing for personal bankruptcy protection.

To reach Paul Wenske, consumer affairs reporter, call (816) 234-4454 or send e-mail to pwenske@kcstar.com.

-- Guy Daley (guydaley1@netzero.net), May 24, 2001


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