Personal Stigma Eases As Bankruptcy Lines Grow Ever Longer

IN 1984, Loren Schmerler lost $150,000 on the stock market. That loss wiped out his savings of 15 years. In the next three years he tried to pay back his creditors. Faced with constant phone calls and threatened lawsuits, he offered a repayment plan to his creditors. Twelve of his 13 creditors agreed to terms, but one bank refused. As a last resort, he was forced to file bankruptcy in 1987. He lost his home of 10 years and his Oldsmobile Toronado.

"It took me two-and-a-half years to finally agree to file bankruptcy," says Mr. Schmerler, a business consultant in Atlanta. "It was a very difficult decision to make because I thought it was not the right thing to do."

Schmerler is one of the growing number of Americans who have filed for bankruptcy. In 1992, 900,874 personal bankruptcy petitions were made nationwide, up from 872,438 in 1991, according to the American Financial Services Association, a trade group of consumer lenders in Washington.

Industry analysts attribute the increase in bankruptcies to the sluggish economy, changing attitudes toward bankruptcy as a way to resolve personal debts, and aggressive advertising by bankruptcy lawyers. "The continued increase in bankruptcy shows that the economy has not improved for the consumer," says Charles Tatelbaum, vice president of the American Bankruptcy Institute, a research organization in Washington. Mr. Tatelbaum says some of the personal bankruptcies in 1992 were the direct result of corp orate cutbacks.

"More and more people, who have used credit cards to finance their businesses and lifestyles, are now being forced to file bankruptcy," says Schmer-ler, president of Bottom Line Management Inc., an Atlanta consulting firm.

Last year, personal bankruptcy filings cost private-sector creditors, including small businesses and individuals, more than $10 billion. About $4 billion of that sum was lost by credit-card issuers, according to SMR Research Corporation, in Budd Lake, N.J.

"It used to be a major stigma to file bankruptcy. People were very ashamed of it. But today it is a totally different feeling," Tatelbaum says. In a local newspaper, people can find lawyers advertising to handle a bankruptcy case for just $195, he says. "That's like a dentist who says he is going to pull a tooth for $15."

The slow economy is contributing to the bankruptcy boom. In New England, for example, a downturn in real estate markets has forced many people to file, says Nina Parker, a Boston bankruptcy lawyer. "People realize that they are entitled to a fresh start, and many more people are taking advantage of the laws than they were before," she says.

There are two ways that individuals can file bankruptcy. Chapter 7 requires debtors to sell their properties to pay off creditors. The court then cancels the remaining debt. Debtors are allowed to keep clothing, furniture, and some equity.

Chapter 13 is a reorganization plan, which allows debtors to keep most of their assets, in exchange for making reduced but regular payments to creditors for three to five years.

But filing bankruptcy can be expensive. In addition to a $120 filing fee, legal fees usually cost a consumer between $400 to $900 for Chapter 7 and $750 to $1,000 for Chapter 13.

Schmerler filed a Chapter 7 bankruptcy. The court auctioned off his house and car. He received $5,000 for his equity in the house and $1,000 for his car. Schmerler says these losses made him feel more sympathetic toward others with a similar problem. In the past four years, he has given numerous talks to college students and adults on how to avoid bankruptcy.

"A lot of bankruptcy attorneys are now multimillionaires," says Schmerler, noting that some law firms handle 1,000 to 2,000 cases a year.

"We don't like to see people go into bankruptcy unnecessarily," says Donald Badders, president of National Foundation for Consumer Credit in Silver Spring, Md. This nonprofit organization has 850 offices nationwide helping people make repayment arrangements with creditors without filing bankruptcy. Last year, 571,000 consumers sought help from the NFCC, up from 539,000 in 1991.

Mr. Badders says most of his clients have at least 10 credit cards and have a tough time just making minimum payments. "Some people think that bankruptcy is an easy way out. But they don't realize the financial burden that puts on them in the next 10 years." Bankruptcy remains on a person's credit report for seven to 10 years.

For someone who is struggling with a heavy debt, Schmerler gives the following advice: "The first thing you want to do is talk to your creditors honestly. Approach them and find an alternative plan to your filing bankruptcy that they will consider.

"If the creditors don't accept the offer, then look at yourself in the mirror and say, `I am not a bad person. I am not breaking a law and the law lets me do this.' "