Bankruptcy Rate Expected to Decline After 1996 Surge

A 19% surge in personal bankruptcy filings in Orange County in 1996 provided a sobering glimpse of the dark side of an otherwise bright economy. But economists expect a somewhat different picture to emerge in the next few years.

Personal bankruptcies in Orange County should decline slightly through the remainder of the decade, said Steve Cochrane, senior economist at Regional Financial Associates, a West Chester, Pa., economic research and consulting firm. By contrast, personal bankruptcy filings for the nation as a whole will increase an average of 6.4% a year during the same period, Cochrane predicts.

That’s a turnaround from the first half of the decade, when the rate of new bankruptcies in Orange County exceeded the national average. The reason, Cochrane said, is that “more people are doing better and managing their financial affairs in an environment of a fairly positive economy. It’s easier to work out debt when there’s greater confidence in the local economy and your own job situation.”

RFA projections, for instance, show that personal income will grow at a faster pace in Orange County than the rest of the nation through the remainder of the decade--also a reversal of the 1990-95 trend.

Lest the forecast be viewed as heralding an end to the bankruptcy problem, however, Cochrane cautioned that bankruptcy filings in the county will still remain at historically high levels. That seems to be due to the growing use of bankruptcy as a financial management tool, rather than an option of last resort when debts pile up, he said.

“Most economists around the country are really searching to understand this phenomenon of bankruptcy right now,” he said.

*

Patrice Apodaca covers economic issues for The Times.

She can be reached at (714) 966-5979 and at patrice.apodaca@latimes.com