Posted on: Thursday, May 24, 2001

Fear of law change fuels rise in bankruptcy filings

USA Today

A soft economy and fears that Congress would pass a tougher bankruptcy law fueled a 17.5 percent jump in bankruptcy filings in the first three months of the year, making it the second-highest quarter in history.

"The economic slowdown beginning last fall, combined with historic high levels of consumer debt, mean filings will reach a new peak this year," said Samuel Gerdano, executive director of the American Bankruptcy Institute (ABI).

The data, released yesterday by the Administrative Office of the U.S. Courts, showed a 21 percent increase in Chapter 7 filings, in which debtors liquidate their assets and wipe out most unsecured debts, such as credit card bills. The increase also reflected a significant increase in corporate bankruptcies, ABI said.

Hawai'i officials also have said that the number of local bankruptcies is up over the same time last year.

The jump is occurring at a time when the House and the Senate have passed bills that would make it harder to get into bankruptcy and harder to erase unsecured debts.

Once a conference committee is formed, the differences in the measures will be ironed out, and sent to President Bush for signing, most observers believe.

"There is a rush to file under the old law," said Stuart Feldstein, president of SMR Research in Hackettstown, N.J.

He also said bankruptcy filings are affected by interest rates. But the big unknown is the economy. Many workers live paycheck to paycheck.

"All they need is a little cut in commissions, tips, overtime and they can't pay their bills," Feldstein said.