ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Saturday, April 12, 1997 TAG: 9704140034
SECTION: BUSINESS PAGE: A-5 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: ASSOCIATED PRESS
The number of Americans filing personal bankruptcies last year surged past 1 million for the first time. Why the crisis has struck now is puzzling.
With the dramatic rise in personal bankruptcies, Sen. Charles Grassley said he was miffed that four credit card companies didn't show up at a Senate panel hearing on Friday.
The number of Americans filing personal bankruptcies last year surged past 1 million for the first time, intensifying criticism that too many people take court protection from creditors too lightly. Experts are puzzled about why this has occurred during a strong economy.
``America is in the middle of a bankruptcy crisis,'' said Grassley, R-Iowa, chairman of the Senate Judiciary subcommittee on administrative oversight and the courts. He noted that the current level of personal bankruptcies exceeds that during the recession of the 1970s.
Who's to blame? Consumers who ``don't respect their financial obligations,'' the federal government by setting a bad example of spending above its means, and the credit card issuers, who encourage consumers to go into debt, according to Grassley.
He said he was ``disappointed'' that the credit card divisions of four companies - Advanta Corp., First Chicago Corp., Norwest Corp. and Sears Roebuck and Co. - didn't accept his invitation to testify at the hearing.
``The process of representative government is a two-way street,'' Grassley said.
Asked about the matter outside the hearing, William Binzel, a vice president of MasterCard International, said the companies didn't attend because as individual card issuers they couldn't represent the views of the entire consumer credit industry. ``It isn't just a credit card problem,'' he said.
Binzel said the card issuers were represented instead at the hearing by Michael McEneney, a Washington attorney who also is with the National Consumer Bankruptcy Coalition - a group that includes bankers' associations, retailers, MasterCard and Visa USA Inc.
The coalition says the bank credit card industry lost $4.7 billion in 1995 from consumer bankruptcies, a 45 percent increase over 1994.
Consumer bankruptcy laws provide ``billions of dollars of relief to debtors,'' McEneney testified, by allowing them to discharge their debts even when they are able to repay some or all of them. He also maintained that debtors are able to obtain bankruptcy court protection without demonstrating that they actually need such relief.
Ian Domowitz, an economics professor at Northwestern University, countered that ``too much relief is a relative term.''
Domowitz said his research has failed to find any significant evidence of debtor abuse of the U.S. Bankruptcy Code's Chapter 7, which provides for personal property liquidations. The vast majority of personal bankruptcies are filed under Chapter 7 or are personal financial reorganizations under Chapter 13, which provides a shield while debtors and creditors work out repayment plans.
Domowitz said uninsured medical expenses appear to be the leading cause of personal bankruptcies.
LENGTH: Medium: 65 linesby CNB