Bankruptcy is now easier, but not necessarily better

Bankruptcy.

For most people that word carries a stigma they will try very hard to avoid. But for a growing number of others, bankruptcy is not only a necessary way to escape an onerous debt burden, but a relatively attractive one--and one that is not avoided hard enough or often enough, many credit advisers say.

Since the Bankruptcy Reform Act took effect on Oct. 1, 1979, the rate of personal bankruptcies has jumped from less than 200,000 a year to over 300,000 in 1980--and over 400,000 in 1981. Many feel the act made bankruptcy too easy to use as an escape from the effects of poor money management. But for many others, bankruptcy may be a necessary and valuable last resort, if they have no hope of paying off what could be thousands of dollars of debt within five years.

The more liberal law gets only part of the blame for the rise in bankruptcies. The ability of lawyers to advertise (often with ads carrying headlines like ''Get Rid of All Your Debts Now'') and the effects of the recession on debtors have also added to the burden on bankruptcy courts.

There are two forms of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 13 lets you keep all your property and protects you from your creditors while you embark on a three-to-five year schedule to repay a certain percentage of your debts. Chapter 7, or straight bankruptcy, wipes out all but a few specified debts, and gives you more or less a ''clean slate'' to begin establishing improved spending and saving habits. It does let you keep some of your property, including $7,500 worth of equity in your house, $1,200 for your car, up to $200 per item for household or personal property, $500 worth of personal jewelry, and $750 for tools of your trade.

One similarity Chapters 13 and 7 have, credit counselors agree, is that both should be avoided if at all possible.

''People have a basic right to go into bankruptcy if they really need it,'' acknowledges Peter Gray, a vice-president in the consumer services department at Citibank. ''But for many individuals, it would be better if they would look for other ways to get out of debt.''

Those ''other ways,'' Mr. Gray and other credit counselors note, include consolidation of loans, restructuring of the debt, and working out new repayment schedules with creditors. Before taking any of these measures, people over their heads in debt should also seriously consider one of the many credit-counseling services. Some banks have them, and they may also be found in the Yellow Pages of your phone book under such listings as ''credit counselors,'' ''debt,'' ''loans,'' and even ''lawyers.'' (Some lawyers do advise clients to talk to credit counselors before going ahead with bankruptcy proceedings.)

Exploring these alternatives may require some work, and learning to live on a tight budget for a year or so while you wipe out your debts may be hard, credit experts say. Howover, the disadvantages of bankruptcy are not insignificant:

First, the process of declaring bankruptcy could cost several hundred dollars in legal fees.

Second, if you use Chapter 13, the filing remains on your record for six years; a Chapter 7 filing stays with you for 10 years. And unless you can prove unavoidable, extenuating circumstances for the bankruptcy, obtaining new credit during that period--and often, for some time later--could be difficult.

Third, if you can manage to repay 100 percent of your debts outside the bankruptcy system, you give yourself a sense of satisfaction. Also, you may actually improve your credit rating, even though you took extra time to pay off the debt. Many lenders look more kindly on people who have taken this route, figuring they have learned their lesson and may have adopted better spending habits than people who never had credit problems.

Mutual funds' net asset value

I recently purchased shares in a mutual fund that lists its net asset value (NAV) in the high $40's. I note that in my newspaper's daily listing of such funds, there are only a few others in this category. Most of the funds have a NAV of around $10. Why should a few mutual funds have such high NAVs, and how is this to be interpreted in assessing whether the fund is a good ''buy''?

A mutual fund's net asset value is defined as the value of all its assets, minus any liabilities, divided by the total number of outstanding shares. While you are correct that most funds have a NAV of about $10 (several are close to $ 20), an unusually high NAV is not, by itself, particularly meaningful. This may just mean it is an older fund whose assets have grown over time, or that there are fewer outstanding shares.

Sometimes, says Rab Bertelsen, spokesman for the Fidelity Group in Boston, fund companies feel that if the NAV gets too much above $10 a share, it is not as ''marketable'' as one with a lower NAV. In this case, they will ''split'' the shares, so that a customer with one $40 share ends up with four shares worth $10 .

When evaluating a fund, it is better to keep an eye on the third column of those tables: ''NAV Change,'' showing how many cents the fund's NAV has risen or fallen since the previous day. This column should be watched for several days or weeks to see a meaningful trend.