ROANOKE TIMES 
                      Copyright (c) 1996, Roanoke Times

DATE: Wednesday, December 18, 1996           TAG: 9612180037
SECTION: BUSINESS                 PAGE: B-6  EDITION: METRO 
DATELINE: WASHINGTON
SOURCE: Associated Press

BANKS: BANKRUPTCY TOO EASY ACTIVISTS BLAME CREDIT CARD MARKETING

Bankers urged a federal bankruptcy reform panel Tuesday to fix serious flaws in the law, flaws that allow consumers to wipe away their debts even if they have the resources to repay some part of their obligations.

Reform supporters presented research that suggested a significant number of consumers were being granted full relief of their debts under Chapter 7 - liquidation - bankruptcy protection when they would have qualified for a repayment plan.

Chapter 7 of the bankruptcy code, which wipes out all debts, is used in 70 percent of personal bankruptcies. Consumers who seek to repay some of their debts file for relief under Chapter 13 of the bankruptcy code.

``Billions of dollars of relief wastefully are being provided to consumers each year when they don't need it,'' said Michael McEneney, an attorney representing a coalition of banks and credit card issuers.

McEneney and other industry representatives testified before the National Bankruptcy Review Commission as the banking industry scrambles to respond to a record 1.1 million bankruptcies filed in the year ended Sept.30.

The congressionally appointed panel is conducting a series of hearings as it prepares to report on suggested reforms by next October.

Bankers have cited escalating bankruptcies as a key problem in the credit card industry, which saw the percentage of delinquent credit card loans jump to 4.5 percent in the July-September period.

Purdue University Professor Michael Staten said a sampling of personal bankruptcies in 12 U.S. cities showed 45 percent of people who filed Chapter 7 protection had income, after expenses, to repay some of their debts.

Staten, director of Purdue's credit research center, said his study suggested Chapter 7 filers nationwide had the ability to repay $5.8 billion over a three-year period. Staten's research was sponsored by the major U.S. credit card companies, Visa and MasterCard.

Consumer groups say banks have fueled the bankruptcy problem by flooding consumers with credit card solicitations in an aggressive bid for business. In the third quarter alone, banks added $7.5 billion in credit card loans.

However, McEneney said bank lending practices are not the issue.

``This is not an underwriting problem. It's a fundamental problem with the bankruptcy code,'' McEneney said.

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