
DATE: Tuesday, June 10, 1997                TAG: 9706100219

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY TOM SHEAN, STAFF WRITER 

                                            LENGTH:   81 lines

500 TO 600 VIRGINIANS ELIGIBLE FOR SEARS REFUNDS STATE WILL RECEIVE PENALTY OF $250,000; RETAILER WILL REFUND AT LEAST $125 MILLION.

Between 500 and 600 Virginia residents will be eligible for refunds from Sears Roebuck & Co. because of the retailer's faulty credit collection practices, the office of Virginia's attorney general estimated Monday.

As part of a nationwide settlement, Virginia also will receive about $250,000 in civil penalties because of Sears' failure to file certain documents with federal bankruptcy courts, a spokesman for Attorney General James S. Gilmore III said.

``That's a preliminary estimate. We will know more later,'' Don Harrison, the attorney general's spokesman, said.

In an agreement with the attorney general of Massachusetts, Sears announced last Thursday that it would refund at least $125 million to tens of thousands of customers who promised to repay the company after they had filed for personal bankruptcy.

Sears, which is based in Hoffman Estates, Ill., also agreed to forgive any remaining debt owed by these customers.

Attorneys general from at least 39 other states have already joined the settlement, which grew out of a bankruptcy case in Boston. Harrison said Gilmore was scheduled to sign documents late Monday making Virginia part of the settlement.

The case against Sears involved agreements that allowed individuals in Chapter 7 bankruptcy to keep merchandise they bought with a Sears credit card if they promised to repay at least part of what they owed the company.

Because these customers were in Chapter 7 bankruptcies, their debts to Sears normally would have been wiped out.

Reaffirmation agreements are legal and routinely used in personal bankruptcies. However, debtors must not be coerced into the agreements, and the agreements must be filed with the bankruptcy court.

In April, Sears acknowledged to the U.S. Bankruptcy Court in Boston that it had failed to file thousands of the reaffirmation agreements it received.

``Handling the reaffirmation agreements was very inconsistent across the country,'' said Jan Drummond, a Sears spokeswoman. ``Practices varied from region to region.''

The period covered by the settlement with the Massachusetts attorney general stretches from 1979 to April 1, 1997.

Between 1992 and April 1, Sears received reaffirmation agreements from slightly more than 500,000 customers, or about 20 percent of the bankruptcy cases in which it was a creditor, Drummond said.

By some estimates, between 30 percent and 65 percent of these agreements were never filed with the bankruptcy courts, she said.

Sears has already contacted some of the customers eligible for refunds and will notify the rest by the end of summer, Drummond said. In certain cases, the company will have to check court records to determine whether Sears filed some customers' reaffirmation agreements as required.

``We expect to finish our research by Aug. 15,'' she said.

If the terms of the settlement are approved by the court, Sears will distribute its refunds late this year or in early 1998, Drummond said.

With 60 million active card accounts and $27 billion of debt outstanding, Sears ranks among the country's major providers of consumer credit.

It also asks customers who file for Chapter 7 bankruptcy to repay part of what they owe the company. That policy hasn't changed in the wake of its disclosures, Drummond said. However, Sears has stepped up its efforts to comply with court rules, she said.

``Beginning April 1, we've had a standing policy that we will file reaffirmation agreements very quickly,'' she said.

Its settlement with the Massachusetts attorney general also calls for Sears to distribute $25 million to affected customers in addition to its refunds.

The company also agreed to pay $40 million to those states joining in the settlement. The $40 million will include $5 million for them to spend on consumer education. ILLUSTRATION: Terms of the Sears settlement

Forgiveness of all consumer debts improperly obtained by Sears.

Repayment of at least $125 million - including principal,

interest and fees - to affected consumers.

Payment of $40 million to be shared by states, including $5

million to be used for consumer education.

Who's affected?

510,000 customers in bankruptcy between 1992 and April 1997.

Between 500 and 600 Virginians will receive refunds from Sears.