Bankruptcies in State Slow Down

Breaking a nearly four-year string of soaring bankruptcies, the number of Californians seeking shelter from their debts declined in the third quarter, a research firm reported Friday.

A total of 50,650 personal bankruptcies were filed statewide in the July-September period, 5.5% below filings in the second quarter, according to CDB Infotek in Santa Ana.

Although that’s still 13.4% more than in the third quarter of 1996, some observers believe the new numbers indicate that an improving economy and continued job growth are at last having a positive effect on how households manage their debts.

The report tracked the number of filings made under Chapter 7 and Chapter 13 of the Bankruptcy Code, the vast majority of which are made by individuals or families.

In Los Angeles County, personal bankruptcy filings fell 5.0%, to 15,990, and in Orange County they declined 7.7%, to 4,231.

“I think there’s been a corner turned here,” said John Karevoll, a CDB analyst.

Personal bankruptcies in California had doubled from the end of 1993 to this year’s second quarter, a phenomenon attributed to increasing debt loads and the growing social acceptance of bankruptcy.

While it’s too soon to tell if the signals a trend, Karevoll believes it’s likely that fourth-quarter numbers will show decreases from the third quarter and from a year earlier.

“The expanding state economy is reaching more people,” he said. “There’s probably less personal financial distress.”

But more important, he said, bankruptcy may be losing some of its appeal as an easy way out of money troubles.

In the past few years, people seeking bankruptcy protection have found it far easier to receive more credit after filing. They’re often able to qualify for home mortgages, car loans and credit cards. That’s been one of the chief reasons behind the surging bankruptcies, many believe.

Now, Karevoll said, new bankruptcies might be waning because that strategy has “played itself out.”

The California figures follow the release earlier this week of a report showing that personal bankruptcies nationwide also decreased. A total of 335,218 people sought Bankruptcy Court protection in the United States in the third quarter, CDB found. That was down 4% from the second quarter, but remained 9.7% above the level of a year ago.

Mark Zandi, chief economist at Regional Financial Associates in West Chester, Pa., said the slowing pace of new bankruptcies may also reflect tighter standards adopted by lenders--particularly credit card lenders--within the past year or two.

However, Zandi said he worries that the strong economy is now masking a return to more liberal lending policies.

With consumer credit delinquencies and bankruptcies subsiding, lenders are “becoming more emboldened again,” he said. “It would be a very significant problem if the economy had not cooperated. If lenders aren’t careful, we could see another upswing in the next economic downturn.”

Many lenders have pushed to reform the nation’s Bankruptcy Code to make it more difficult for borrowers to shield certain assets from creditors. A federally appointed panel, the National Bankruptcy Review Commission, on Monday will present its package of proposed changes to Congress and the White House.

But that plan is already stirring controversy because it would ease the standards of some states for sheltering assets.

The commission also is not expected to recommend that higher-income debtors be required to file under Chapter 13, which calls for a repayment plan, rather than liquidate under Chapter 7. Lenders have strongly advocated such a requirement.

* STATE OF EMPLOYMENT: Nearly half of the new jobs created in the U.S. in September were in California. D2

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Bankruptcies Fall

Personal bankruptcies in six southern California counties declined 5.3% in the third quarter.

In thousands

3rd quarter 1997: 32,540

Southland Counties

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County 2nd Qtr. 1997 3rd Qtr. 1997 Pct. change Los Angeles 16,836 15,990 -5.0% Orange 4,582 4,231 -7.7 San Diego 4,739 4,512 -4.8 Riverside 3,119 2,979 -4.5 San Bernardino 3,597 3,476 -3.4 Ventura 1,324 1,188 -10.3

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Source: CBD infotek