Bankruptcy: Frightening Reality

Since the 1960s, personal bankruptcy has often served as a refuge for the young and struggling. Bankruptcy lawyers say younger and less-educated people tended to rack up too much debt while starting families and jobs, without a savings cushion to carry them through lean times. That's changing, as personal bankruptcy filings hit all-time highs. Last year, there were more than 1.6 million such filings, nearly twice as many as a decade earlier. Some experts say much of the increase is being driven by older people, many with decades of work experience in white-collar jobs. In 2001, per capita filings by people ages 45 to 54 increased 58% from a decade earlier, according to one study. Bankruptcy is a legal proceeding that allows a person who is overwhelmed with debts to eventually become debt-free. In a typical personal-bankruptcy case, credit-card balances and other "unsecured" debts-which are not backed by any collateral-are wiped out entirely. Under court supervision, the debtor then negotiates a plan with creditors to pay off as much of the remaining debt as possible, over three to five years. During that time, debtors cannot take on any new debts, but they are protected by the courts from being sued by creditors or having their assets repossessed. Credit reports list bankruptcy filings for seven to 10 years, making it almost impossible for a filer to get new loans or credit. But once that period is over, the debtor can move on with a clean credit record, free of debt. Some members of Congress have criticized the current personal-bankruptcy laws, saying they make it too easy for debtors to escape their responsibilities. In recent years, Congress has gotten close to passing legislation that would make it harder for many individuals to file bankruptcy, but those efforts have failed. The increase in middle-age people filing for bankruptcy is also attributed to soaring medical costs, an unstable job market and years of aggressive credit-card marketing. The number of credit-card solicitations in the U.S. grew to 4.29 billion in 2003, from 1.52 billion a decade earlier. Last year, revolving consumer debt totaled more than $734.1 billion, compared with $238.6 billion in 1990. In recent years, the credit-card industry has grown increasingly aggressive in raising interest rates for certain consumers. Interest rates can go up when a person's payments are late, or when total debt gets too high. So basically, experts say an increase in bankruptcy