Bankruptcies Rise to Record in Quarter By Andrew Clark

WASHINGTON (Reuters) - Strapped by the slumping economy and spooked by a looming change in the law, Americans filed for bankruptcy in record numbers in the second quarter of 2001, according to data released on Friday.

The Administrative Office of the U.S. Courts said personal and business bankruptcies totaled 400,394 between April and June, a 9 percent increase over the first quarter and an almost 25 percent jump from the same period last year.

Experts have been predicting bankruptcies will be on the upswing this year as the U.S. economic slowdown puts the bite on consumers and companies alike. Bankruptcy filings last peaked at 373,460 in the second quarter of 1998.

But the scale of the surge still left many slightly breathless. ``It's borderline shocking, actually,'' said Sam Gerdano, executive director of the Alexandria, Virginia-based American Bankruptcy Institute.

Personal bankruptcy filings totaled 390,064 in the second quarter, up a full 24.8 percent from the 312,486 recorded in the same quarter of last year. Business bankruptcies rose a more modest, but still hefty, 11.8 percent to 10,330.

Buoyed by the longest economic expansion in U.S. history, consumers binged on debt over the last decade, and are now facing the consequences as the boom wanes, Gerdano said.

BINGE AND PURGE

``We're in the purge phase now,'' he said. ``The bill is coming due, and it's coming due at the same time that we've had half a million people lose their jobs.''

Added to that, Congress is closing in on final approval of long-delayed legislation that would significantly tighten U.S. bankruptcy laws, apparently spurring some debtors to seek relief now before it becomes harder to do so in future.

``That's probably part of it,'' Gerdano said. ``It's hard to measure, but it's in there.''

The legislation would bar debtors judged able to repay some of what they owed from Chapter 7 bankruptcy, which allows unsecured debts, like credit card bills, to be wiped out.

Instead, those with income after living expenses of $100 a month or more would have to file under Chapter 13, and repay their debts over five years. About 75 percent of all personal filings in the second quarter were under Chapter 7.

The overhaul easily passed both the House of Representatives and Senate earlier this year. Their two versions must still be reconciled before it can go to President Bush, who supports the effort.

Over the 12-month period to the end of June, bankruptcies rose to 1,386,606 from 1,276,922 in the same period last year. Personal filings rose 8.8 percent to 1,349,471, while business filings edged up to 37,135 from 36,910.

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

Answers

Bankruptcies have been rising at a phenomenal rate in Japan for the past eighteen months. But, that country has not gone over the cliff yet. Bankruptices should be a reliable signal of what lies ahead, but for some unknown reason, it isn't always that way.

-- Wellesley (wellesley@freeport.com), August 25, 2001.