On Course for Record Bankruptcies

Visa USA expects personal bankruptcies to hit a new high of more than 1.3 million this year, and hopes an advertising campaign with the National Foundation for Consumer Credit will help stem the tide.

Consumer and business bankruptcies are already at record levels for the last 12 months. Since June 30, 1997, 1.38 million consumers have filed for bankruptcy protection, compared with 1.26 million in the year-earlier period, the Administrative Office of the U.S. Courts said. Consumer borrowing is rising at a 5% annual rate, with total outstanding debt now at $1.27 trillion, according to figures released Tuesday by the Federal Reserve System.

Visa’s 30-second radio ads are being aired in Los Angeles, San Diego, San Francisco and 17 other cities nationwide. The spots highlight services offered by the foundation’s Consumer Credit Counseling services, which are nonprofit organizations supported by donations from Visa and other lenders. The counseling services attempt to help consumers negotiate with creditors, reduce debt and avoid bankruptcy.

Visa says half of those who file Chapter 7 liquidation bankruptcy are unaware of alternatives, such as credit counseling or filing a type of bankruptcy that requires consumers to repay some of their debts.

Consumer advocates say liquidation bankruptcy is often the best option for overextended debtors and that Visa and other lenders are attempting to evade responsibility for extending too much credit.

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Liz Pulliam covers insurance, taxes and other personal finance issues for The Times. She can be reached at liz.pulliam@latimes.com.

Bloomberg News was used in compiling this report.