LEXIS-NEXIS® Academic Universe-Document

LEXIS-NEXIS® Academic

March 19, 2000, Sunday, FINAL EDITION

SECTION: BUSINESS & FINANCE, Pg. 1

LENGTH: 791 words

HEADLINE: Bankruptcies reach a high plateau;

BYLINE: SCOTT BERNARD NELSON, of The Tampa Tribune;

BODY:

Bankruptcy reform is a hot topic on Capitol Hill. But there is still plenty of debate about what, exactly, needs to be reformed.

Statistics don't lie: The number of bankruptcies is spiraling out of control.

Unless, of course, it's falling.

New numbers released this month by the Administrative Office of the U.S. Courts took some of the edge off reform arguments by politicians fired up about the rising number of bankruptcies. Last year, for the first time since 1994, the number of people trying to wipe out their debts actually declined. Personal bankruptcies fell 8.3 percent nationwide, from 1.4 million in 1998 to 1.28 million last year. In the Middle District of Florida, which includes the Tampa Bay area, they dropped nearly 8 percent, from 45,472 to 41,855.

"Whether or not the trend has topped out, it's too soon to tell," says Steve Rhode, author of "Get Out of Debt" and president of the Maryland-based Debt Counselors of America.

"It may be that the boom in home-equity borrowing temporarily masked a consumer debt problem that's getting worse, not better," Rhode says. "A lot of people took out home loans to pay other bills, but those will eventually come due, too."

Regardless, there's no debate about the fact that the overall number of bankruptcies remains near an all-time high despite soaring consumer confidence and rock-bottom unemployment.

The problem is especially acute in the Middle District of Florida, the third most active bankruptcy district among 94 in the country.

"When the economy is thriving and bankruptcies are still high, it's a huge red flag that something is broken," says Catherine Pulley, spokeswoman for the American Bankers Association, which supports reform of laws governing the bankruptcy process.

The ABA isn't alone on that front, either. The U.S. House of Representatives passed legislation last year that would overhaul the bankruptcy code, and the Senate followed suit in February.

Should it become law, either version would dramatically alter the bankruptcy process for consumers, particularly in Florida.

Under the House bill, people who earn more than the median income for their part of the country (about $ 39,000 in the Bay area) and who could afford to pay back $ 6,000 over five years would be forced into Chapter 13 bankruptcy instead of the more popular and more forgiving Chapter 7.

Under the Senate bill, anyone able to pay at least $ 15,000 over five years can't file under Chapter 7, unless they earn less than another pre-set amount (roughly $ 72,000 for a family of four).

The key difference: Chapter 13 requires people to work out a repayment plan, during which they have to make good on at least some of their bills. Chapter 7, in contrast, wipes the slate clean.

The House bill would force bankruptcy filers to turn over three years of tax returns to prove whether their incomes are sufficient to repay some or all of their debts. The Senate bill would make the tax returns optional, at the discretion of creditors.

Consumer advocates, though, are troubled by any change that would make Chapter 7 bankruptcies harder to get.

"We definitely have issues with any type of means testing that keeps people out of Chapter 7," says Mark Ferrulo, director of the Florida Public Interest Research Group. "You're pulling the safety net out from under people who legitimately need to use the system the way it was intended to be used."

There is less controversy over the aspects of both bills that are designed to head off abuses by wealthy debtors.

Both bills would clamp down, for example, on Florida's unlimited "homestead exemption" law.

As it stands now, wealthy debtors can buy expensive homes in Florida and shield the entire purchase from creditors through bankruptcy. The House bill would limit the homestead exemption to $ 250,000, the Senate bill would set a limit of $ 100,000.

High profile filers such as former Major League Baseball commissioner Bowie Kuhn and Tampa corporate raider Paul Bilzerian ignited firestorms of controversy in recent years by buying Florida homes worth millions of dollars and then filing for bankruptcy protection.

"There's no question that some abuses have taken place," Ferrulo says. "We just don't want an anti-consumer Congress to throw out the baby with the bath water." (C) (CHART) Bankruptcy by the numbers Americans filed bankruptcy at a record pace in the 199s, with few regions more prone to it than Central Florida. Last year, for the first time since 1994, the number of filings went down both nationwide and in the Tampa bay area. Source: Administrative Office of the U.S. Courts Tribune graphic

GRAPHIC: CHART (C)

NOTES: MONEY SENSE

LOAD-DATE: March 21, 2000