31% Rise Seen in State in Personal Bankruptcies

The number of personal-bankruptcy filings in California continued a record-setting climb in the first quarter, reflecting in part the dramatic lowering of lending standards in recent years now straining many low-income households, according to a report released Friday.

Statewide, individual bankruptcies surged to 48,779 in the first quarter, up 31% from the first three months of last year. Most of those filings were in Southern California, which continues to see an unprecedented level of personal bankruptcies despite the much-improved economy. The hub of activity was Los Angeles County, where filings boomed 72% in the first quarter, after increasing 64% in 1996 from 1995.

“It’s universal. From L.A. to Boston, there isn’t an area where bankruptcy hasn’t risen significantly,” said Mark Zandi, chief economist at Regional Financial Associates, a national economic consulting firm in West Chester, Pa.

But as alarming as the increase appears, analysts said the large number of bankruptcies itself does not pose a serious threat to California’s robust economy. Experts said the filings are confined largely to lower-income households, who plunged into debt between 1993 and mid-1996, when lenders often extended credit cards and other loans to risky borrowers. Since then, banks and other lenders have tightened credit, and economists expect the bulge in bankruptcy filings to flatten by year-end.

“There’s an awful lot of people [filing for bankruptcy] with assets of less than $30,000 and liability . . . in the $10,000 range,” said John Karevoll, the analyst who conducted the study for CDB Infotek in Santa Ana. With bankruptcy filing now relatively easy and cheap, Karevoll added, “People who have a couple of credit cards they can’t keep payments on may be resolving that by declaring bankruptcy.”

Many bankruptcy lawyers also believe that in Los Angeles County the burgeoning number of filings is due partly to the continued use of bankruptcy as a tool to delay eviction and keep creditors at bay. While federal officials have tried to crack down on illegal bankruptcy filings, including those by people who use another’s identity, many believe fraud remains rampant.

CDB’s latest data, which were broken down by county, showed that personal bankruptcies were up sharply throughout most of Southern California. The firm compiled the number of Chapter 7 and Chapter 13 bankruptcy filings, the vast majority of which are made by individuals, based on which county the filer lived in, not where the filing was made.

As a whole, personal bankruptcies in Southern California jumped 42% in the first quarter, to 31,342. Filings in Orange County surged 18%, while Riverside and San Bernardino counties each saw a 28% increase. Individual bankruptcies nearly doubled in Ventura County, to 1,185 from 613 in the first quarter of 1996.

By comparison, personal bankruptcy filings in the Bay Area--where the economy has been more dynamic than the rest of the state--increased by just 5% in the first quarter, to 7,344. Individual bankruptcies rose 22% in the Central Valley.

Most personal bankruptcies are Chapter 7 filings, which enable individuals to wipe out their debts and start over. While creditors must absorb those losses, the filers themselves face fewer negative consequences, which, many experts say, is another reason for the rise in filings.

“A few years ago, people who declared bankruptcy were cut off from credit. That has changed,” said Rick Rozar, CDB president and chief executive. “These days, they’re a target marketing group for all sorts of businesses, including credit companies, car dealers and even some mortgage lenders.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Bankruptcy Boom

A record number of Californians filed for personal bankruptcy, either Chapter 7 or Chapter 13, during the first three months of 1997:

*--*

1st-qtr 1996 1st-qtr 1997 Percent County/region filings filings change Los Angeles 8,890 15,284 72% Orange 3,662 4,315 18 San Diego 4,256 4,430 4 Riverside 2,206 2,832 28 San Bernardino 2,459 3,156 28 Ventura 613 1,185 93 Southern California* 22,151 31,342 42

*--*

*Includes additional counties

Source: CDB Infotek