- The Washington Times - Wednesday, February 28, 2001

Fewer Americans filed for bankruptcy last year as they were bombarded with a record number of credit-card solicitations and racked up over $500 billion in credit-card debt.

A consumer group yesterday pointed to these statistics as reasons why bankruptcy overhaul is unnecessary and potentially harmful, giving credit-card companies more license to aggressively pursue customers. A bill has been pushed by banks and other lenders who want to cut down on bankruptcy-system abuses and recover more of their loans.

The Senate revised the bill yesterday and the House is scheduled to debate the matter Thursday. A similar bill was passed late last year and then vetoed by President Clinton, but President Bush is expected to sign the measure this time around.

The bill aims to hold consumers responsible for their debt by funneling more filers into Chapter 13, which requires debtors to pay off some of their obligations. The vast majority of personal bankruptcy filers enter Chapter 7, which provides almost complete debt protection.

"The bill was originally intended to address abuse, not [the number of] bankruptcy filings," said Travis Plunkett, legislative director of the Consumer Federation of America.

Personal bankruptcies fell to 1.21 million in 2000, down from 1.28 million in 1999 and 1.4 million in 1998, according to the Administrative Office of the U.S. Courts. On a per-capita basis, bankruptcies fell 5.8 percent in 2000, calculated University of Maryland economics professor Lawrence Ausubel for the federation.

The new number "raises questions of the advisability and need of new bankruptcy legislation," said Stephen Brobeck, executive director of the consumer group.

Catherine Pulley, a spokeswoman for the American Bankers Association, said the bankruptcy bill is well-targeted to those who abuse the system.

"No one wants to make it harder for people who truly need the system to declare bankruptcy," she said. "All we're talking about is stopping the wealthy filers from walking away from their debts."

She said that credit-card companies many of them banks are not to blame when consumers use credit irresponsibly or file for bankruptcy to avoid paying their debts.

The Consumer Federation maintains that credit-card firms have fostered bankruptcy by extending credit to individuals who are unable to repay. Mr. Plunkett said that if the current legislation passes, credit-card companies will know they will be able to recover more of their money so will be less cautious in extending credit.

But he also noted that two-thirds of people who enter Chapter 13 do not complete their repayment plan.

Samuel Gerdano, president of the American Bankruptcy Institute, a nonprofit education and research group in Alexandria, Va., corroborated that figure.

"Normally, the repayment plans are cut so close to the edge, that if there is any kind of change in the debtors' circumstances that has an impact on their disposable income … the plan gets out of whack," he said.

Mr. Plunkett criticized provisions in the bill that require credit-card companies to disclose the way minimum payments work. He pointed to research by BAIGlobal, a mail-monitoring firm, that found 3.5 billion mailings were sent out by credit-card companies last year, as evidence that the industry is marketing to too many consumers who are unable to pay them back.

One credit-card industry researcher agreed.

"Look at the mailings. They're not implying in any way that you should be concerned about whether you can repay," said Robert Manning, a senior fellow with the Institute for Higher Education Law and Governance at the University of Houston Law Center.

Americans carried $531 billion in credit-card debt by the end of the third quarter last year, 6 percent of their total pre-tax income, according to Veribanc, a bank-rating and research firm.

Mr. Manning, author of "Credit Card Nation," said that in the bankruptcy bill, consumers bear the brunt of responsibility for their debt, while credit-card companies get off scot-free.

He said the bill would make filing difficult for those aged 25 and under, the fastest-growing segment of bankruptcy filers, and small-business owners who use credit cards to finance their businesses when they cannot get bank loans.

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