- The Washington Times - Wednesday, February 20, 2002

One out of every 144 U.S. adults filed for bankruptcy last year.
A sluggish economy and massive household debt pushed bankruptcy filings by consumers and businesses to record levels in 2001. Some economists expect filings to remain high in 2002 as well.
Bankruptcies rose 19 percent to 1.49 million last year, up from 1.25 million in 2000 and well above the previous record of 1.44 million in 1998, according to figures released yesterday by the Administrative Office of the U.S. Courts.
Consumers accounted for nearly all bankruptcy filings. Personal bankruptcy filings last year reached 1.45 million, up 19 percent from 1.22 million in 2000. Business bankruptcies reached 40,099, up 13 percent from 35,472 the year before.
Economists said the increase in consumer filings was no surprise in light of the economic downturn, which caused hundreds of thousands of U.S. workers to lose their jobs last year.
"Anytime you have high debt with an interruption of income, which many households had in 2001, you have a problem," said Samuel Gerdano, executive director of the American Bankruptcy Institute.
An estimated 1.4 million U.S. workers have lost their jobs since March 2001, according to the Bureau of Labor Statistics. The U.S. economy has been in recession since March, and the September 11 terrorist attacks fueled job cuts.
Consumer debt rose as workers lost their jobs and were unable to pay their bills, economists said.
Monthly household-debt burdens have risen steadily, according to Federal Reserve statistics.
The Fed said total consumer debt was $1.6 trillion as of November. Revolving debt debt from credit cards reached $694 billion, and non-revolving debt including auto loans, personal loans and home-equity loans was $958 billion.
About 13.8 percent of a household's after-tax income was used to pay debt in the third quarter, the Federal Reserve said. That's up from the early 1990s, when 11 percent to 12 percent of household income went toward debt.
Tax-refund checks of up to $600 per household probably helped keep consumer debt down because many people used the money to pay off credit cards, said Dean Maki, vice president of Putnam Investments of Boston and a former Federal Reserve economist.
In addition to job cuts and rising consumer debt, the threat of legislation that would make it harder for consumers to file for bankruptcy could have driven more people to seek protection from creditors, economists said.
"That might account for some of the spike," Mr. Maki said.
Congress tried last year to make it more difficult to claim bankruptcy. Both the House and Senate passed reform bills, but efforts to change bankruptcy laws stalled once Democrats took over the Senate.
"We're hopeful it does pass. Bankruptcy should not be used as a financial-planning tool," said James Chessen, chief economist at the American Bankers Association.
But few expect bankruptcies to fall in 2002. A poll last month by the American Bankruptcy Institute found that 93 percent of its members believe filings will continue to increase.
Others think bankruptcy filings could spur the economy by wiping away consumer debt and convincing people to resume spending.
"Bankruptcy can increase spending, because it gives people a fresh start," Mr. Maki said.
Consumer spending accounts for two-thirds of the nation's gross domestic product.
Bankruptcy filings hit their peak last year during the three months from April to June, when 400,394 persons and business filed.
Virginia led the region in business and personal bankruptcy filings last year with 41,763. In Maryland, 35,388 consumers and businesses filed, while 2,559 bankruptcy filings were made in the District.
Only 285,000 U.S. consumers and businesses filed for bankruptcy in 1985.


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