NEWS for North Dakotans
Agriculture Communication, North Dakota State
University
7 Morrill Hall, Fargo, ND 58105-5665
July 2, 1998
North Dakota's nonbusiness bankruptcy filings for the first quarter of 1998 are up compared to 1997, the year when filings for personal bankruptcies totaled a record-setting 1,806. While it's too early to tell if 1998 will set another state record, an extension specialist at North Dakota State University says the bankruptcy issue has become a hot national topic, and a tougher federal bankruptcy law may become a reality yet this year.
"Much of the ongoing debate in Congress right now involves who's at fault for the rising number of bankruptcies," says Debra Pankow, extension family economics specialist at NDSU. "Folks like the banks, credit card companies, and national and local retailers are blaming consumers, many of whom, they say, are using the current bankruptcy law to shirk bills they're capable of paying."
Two studies, one by Ernst & Young LLP and the other by Georgetown University's Credit Research Center, support the creditors' contentions. Those studies conclude that from 5 percent to 10 percent of all bankruptcy filers could pay their debts and maybe as many as 30 percent could pay up to a third of their outstanding bills.
"Of course, those studies were funded by creditors," stresses Pankow.
The Wall Street Journal recently reported that the six-year-old National Consumer Bankruptcy Coalition has not only funded such studies but also provided financial backing for an advertising campaign calling for a bankruptcy law overhaul. In addition, the group has underwritten opinion polls designed to show public support for the creditors' proposals.
At the same time, members of the National Bankruptcy Review Commission, which Congress created in 1994, disagree about what needs to be done. The majority believe there is no widespread abuse of the current system, and five members of the nine-member commission see no need for major changes in the current law. Two of the nine members have endorsed revisions that resemble those contained in the bills Congress is now considering.
The current bankruptcy numbers are not the issue. The debate centers on the causes of the trend and what the solutions should be," explains Pankow.
Last year, 1.4 million Americans used bankruptcy law to seek protection from their creditors, compared to only 172,000 in 1978. The 1997 figure represents about one out of every 70 U.S. households. Besides blaming current bankruptcy law, creditors say the social stigma attached to filing for bankruptcy is not what it used to be.
In contrast, defenders of current bankruptcy law say the surge is a result of divorce, layoffs and the loss of medical insurance. Many also blame creditors for aggressively encouraging the use of credit, which is resulting in rising consumer debt.
"Both sides in this argument have some valid points," concludes Pankow. "But regardless of who you agree with, it appears as though we may have a revised bankruptcy law on the books this year. The House has already passed legislation dealing with bankruptcy overhaul, and Senate leaders have been saying that they'll take action yet this summer."
One way North Dakotans can improve their financial well-being and avoid bankruptcy court is by participating in Money 2000, a national program designed to encourage participants to increase savings and reduce debt by the year 2000. North Dakota is one of more than 40 states offering this educational program through which a quarterly newsletter, classes and other resources are available to help individuals and families meet their Money 2000 goals. For more information, contact any county office of the NDSU Extension Service.
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Source: Debra Pankow (701) 231-8593
Editor: Dean Hulse (701) 231-6136