
DATE: Friday, May 30, 1997                  TAG: 9705300672

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY TOM SHEAN, STAFF WRITER 

                                            LENGTH:  186 lines

BURIED BY BILLS FILING FOR BANKRUPTCY IS BECOMING ROUTINE FOR THOUSANDS OF AREA RESIDENTS. ARE THEY DEADBEATS OR JUST DOWN ON THEIR LUCK? IT DEPENDS ON WHOM YOU ASK.

By January, Max and Celeste Robbins realized that their debts were spinning out of control.

The Norfolk couple had been wrestling with medical bills that weren't fully covered by insurance. They had a fistful of bills from several credit cards and $8,000 of expenses from a faltering business venture.

``It wasn't any one thing,'' Robbins recalled. ``It was an accumulation of little things that kept building.''

Two months later, the Robbinses sought relief in U.S. Bankruptcy Court.

By using Chapter 13 of the federal bankruptcy code, they devised a plan for repaying most of their debts over three years. As part of that plan, several creditors agreed to forgo a portion of what they were owed.

Seeking court protection from creditors has become routine for many Hampton Roads residents overwhelmed by debt. Last year the number of personal bankruptcies filed in the region surpassed 11,000, a 21 percent increase from 1995.

The increase in filings shows no sign of slowing. For the three months through March, the total was up almost 40 percent from the comparable quarter in 1996.

The trend has been much the same across the country. A record 1.12 million Americans filed for bankruptcy last year, a 28 percent increase from 1995. This year, the number is likely to reach 1.3 million, some creditors and bankruptcy attorneys have predicted.

Mounting losses from personal bankruptcies already have prompted a few banks, credit-card issuers and retailers to reduce the availability of consumer credit or to make it more costly.

Advanta Corp., the nation's ninth largest credit-card issuer, recently raised its annual interest rates and imposed higher fees after suffering a $19.8 million loss for the January-through-March quarter.

When reporting the loss, the Spring Hill, Pa.-based company said it wrote off 5.3 percent of its credit-card borrowing during the recent quarter. That was up from 3.9 percent in the October-through-December period of 1996.

Attorneys, creditors and consumer advocates cite several reasons for a sharp rise in personal bankruptcies. One is the easy availability of credit, especially from credit-card issuers. Some of the others are job losses, the casual spending habits of consumers and their lack of budgeting, and an erosion of the social stigma that once surrounded bankruptcy.

``The primary cause is probably overspending,'' said Frank J. Santoro, a Portsmouth bankruptcy attorney. ``Right behind that are catastrophes like heavy medical expenses or the loss of a job.''

When a two-income couple is living close to the edge, the loss of one spouse's job can be financially painful, Santoro said. Suddenly, the cost of credit-card debt and other high-cost borrowing becomes more difficult to bear.

Divorce is another factor. ``You simply can't support two households as cheaply as one,'' Santoro said. ``When a single parent, usually a mom, is not getting that court-ordered child support, it's a problem.''

Faced with rising losses from personal bankruptcies, some financial institutions and retailers are advocating tougher restrictions on the availability of bankruptcy.

``We believe the system is broken and needs reform,'' said Phil Davis, a senior vice president at NationsBank Corp.'s Card Services unit in Norfolk.

In too many cases, consumers have used Chapter 7 of the bankruptcy code to wipe out their debts while having sufficient income to repay part of what they owed, Davis contended.

Chapter 7 allows individuals to hold onto certain assets while eliminating most of their debts. The exceptions are debts for taxes, student loans, alimony and support payments. If assets are left, a trustee liquidates them and distributes the proceeds to creditors.

``Today, the bankruptcy code doesn't require the debtor to provide documents verifying the accuracy of an income statement or expense statement,'' Davis said. ``You don't have to provide tax returns or pay stubs.''

Others who monitor personal bankruptcy filings counter that imposing tougher restrictions would create hardships for people who need the relief without generating anything for creditors.

``The reality is that most people in bankruptcy have no resources for repaying their debts,'' said Gary Klein, an attorney with the National Consumer Law Center, a consumer advocacy organization in Boston.

The sharp rise in bankruptcy filings, he said, is due largely to the higher level of debt as a percent of household income.

``People are more indebted than they've ever been, so when a small thing goes wrong, it can push them over the edge,'' Klein said.

The debate over whether the rules for personal bankruptcy should be changed will become more heated later this year. A national commission, created by Congress in 1994 to consider changing the bankruptcy code, is scheduled to issue its recommendations in October.

Creditors with a stake in bankruptcy issues aren't waiting for the National Bankruptcy Review Commission to deliver its findings. NationsBank's Card Services center, for example, has expanded its use of counseling for card-holders with heavy debt loads.

The counseling service, which was started in early 1996 with four employees, now has 10 who talk to customers about the alternatives to filing for bankruptcy, Davis said.

Later this year, NationsBank will install sophisticated computer software to determine which of its card customers might be on the verge of filing for bankruptcy. Known as a ``neural network,'' the software looks for unusual patterns in card use to determine whether a customer might be in financial straits. By reaching these customers earlier, the card center's counselors can work with them on alternatives, Davis said.

Meanwhile, the stigma that once discouraged individuals from considering bankruptcy is rapidly disappearing. That's partly because bankruptcy has become an accepted legal strategy for large corporations, said Santoro, the Portsmouth bankruptcy attorney.

``Take a guy and his wife who are working hard to raise a family and struggle for a long time,'' he said. ``When they see a Fortune 500 company file for bankruptcy, there's a tendency to think, `If they can do it, why can't I?' ''

Banks, credit-card issuers and other creditors have been too quick to blame the rise in bankruptcies on a breakdown in personal responsibility, said Alexander P. Smith, a bankruptcy attorney in Norfolk. Most individuals who end up in bankruptcy court need the relief that Chapter 7 offers.

``What you're talking about are the working poor,'' said Smith. ``They are the people paying 25 percent to buy an automobile and buying furniture on credit or through a rent-to-own company.''

Rather than lobbying for tighter restrictions on the use of bankruptcy, card-issuers should be more selective in their solicitations of customers, Smith contended.

One significant development in the region's bankruptcy statistics has been the increasing number of individuals deciding to repay part of what they owe. Greater use of Chapter 13 bankruptcy is due partly to a change in the types of households in financial trouble - those with homes, cars and other significant assets.

When they considered filing for bankruptcy earlier this year, Max and Celeste Robbins considered using Chapter 7. It would have wiped out most of their debt and given them a fresh start.

``The idea sounded appealing, but then the details crept in,'' Robbins said. ``Without the cars, how were we going to get to work? Without the house, where were we going to live?''

The couple's debt repayment plan calls for continued payments of what they owe on their home mortgage, car loans and a department-store account. They also have agreed to repay $41,920, or slightly more than half of their unsecured debt, over three years.

Robbins, whose job involves installing software for electronic classrooms and training the instructors, said writing the repayment plan and adhering to it have not been easy. Celeste has her own word-processing business.

``The hardest part has been readjusting our spending habits and setting a realistic budget,'' Robbins said.

As part of the newly imposed discipline, the Robbinses have closed the eight credit-card accounts they once had.

``Credit was way too easy to get,'' said Robbins, and the cost of credit-card borrowing ``catches up with you after a while.''

It's a lesson that several thousand Hampton Roads households learned the hard way last year. ILLUSTRATION: Color photo

[Side Bar]

Rise in area filings

Reason for increase

Types of Bankruptcy

For complete copy, see microfilm

Graphic

BOOKS ABOUT COPING

``Surviving Debt: A Guide for Consumers from the National