Personal Bankruptcies Climbed in State

Led by a record level of personal bankruptcy filings in Los Angeles County, the number of Californians seeking court protection from creditors skyrocketed 35% last year, according to a study released Monday.

Experts attributed the surge in individual filings overall to several factors, including soaring credit card debt and the de-stigmatization of bankruptcy.

“People are much more willing to file for bankruptcy than they were five or 10 years ago,” said John Karevoll, an analyst who conducted the study for CDB Infotek in Santa Ana. “They’re using it more as a financial tool.”

Personal bankruptcies in Los Angeles County zoomed 64% in 1996 to 53,865, slightly more than during the worst of the recession in 1992 and by far the most of any major California counties, according to CDB. The firm compiled the number of filings of Chapter 7 and Chapter 13 bankruptcies, the vast majority of which are made by individuals, based on which county the filers lived in, not where the filings were made.

Orange County fared better than Los Angeles, with a 19% rise in individual filings, to 16,059. The filings rose 27% in Riverside County to 9,871 and 13% in San Bernardino County to 10,190.

In many cases, particularly in Los Angeles, the high number of filings is due in part to the continued use of bankruptcy as a tool to delay eviction and keep creditors off balance. Sal Sciortino, a longtime bankruptcy attorney in North Hollywood, said the surge in filings in Los Angeles indicates that the courts have not cracked down on the so-called “petition mills”--services that file bankruptcy petitions for low-income renters facing eviction.

“L.A. is totally just out of whack. It’s going wild,” he said.

Analysts also noted that the economic recovery has not helped all segments of the population and that there is still distress in the economy, especially among low-wage earners.

But bankruptcy attorney Joseph A. Weber said his mushrooming caseload can be attributed primarily to one factor: financial survival for people who have run up huge amounts of credit card debt.

In the past, Weber said, people had fairly low credit limits on their bank cards. If they got in financial trouble because of a divorce, the loss of a job, or medical bills, they would cut back on expenses or get a second job. Today, people are more willing to take on larger debt, and use credit cards to bail themselves out.

“I’m seeing kids walking around with $15,000 or $20,000 credit lines. I used to be shocked if somebody came in with $30,000 or $40,000 on bank cards. Now, I’m seeing people with six figures on their cards,” Weber said.

Gary Stroth, executive director of the Consumer Credit Counseling Service in Los Angeles, said many people have ended up with lower-paying jobs during the recovery but continue to live lifestyles of the past. Last year, he said, credit counselors helped more than 30,000 people in Los Angeles County--a 28% increase from the previous year.

“It’s underemployment, people not having the same earning power,” Stroth said.

Steve Cochrane, a senior economist at Regional Financial Associates, a West Chester, Pa., economic research and consulting firm, said a change in bankruptcy laws about a year ago allowed households to shield more of their personal assets from creditors.

Cochrane predicts the number of filings will decline this year, and again in 1998, because the effect of the new bankruptcy laws “will run its course.”

One bright spot in the figures, however, is that corporate bankruptcies have continued to fall.

Statewide, the number of Chapter 11 bankruptcy filings declined 20% to 1,634 in 1996.