It used to a shameful secret. Back in the days when "visa " meant a notation in your passport, being in debt was considered immoral, and declaring bankruptcy was tantamount to confessing total personal failure.
But "bankruptcy is no longer treated like a scarlet 'A' on the forehead," says the National Consumer Finance Association's William Moroney. "It's more like a blue 'B' tattooed on the behind."
The stigma attached to bankruptcy is fading, experts say, as a result of three interrelated factors: a dramatic increase in the number of filings, the troubled economy and a new federal law that makes bankruptcy less devastating.
Americans are going for broke at a record pace. "Filings are up about 60 percent over last year," says the Justice Department's Richard Levine. In percent over last year," says the Justice Department's Richard Levine. In the District and Eastern Virginia filings "are up at least 40 to 50 percent," says Frank Dicello, the U.S.Trustee who administers those areas. p
Persons of all education and income levels are flocking to bankruptcy courts, says economist John Slavicek, "partly due to our credit-crunched, inflation-wracked economy where debt is a way of life.
"Americans owe $1.5 trillion, which breaks down to $6,000 per individual. And as tens of millions can't pay their bills, the surge of bankruptcy filings is becoming an entire movement.
Spurring on that movement is Slavicek's American Bankruptcy Council, which offers, among other services, a $75 do-it-yourself bankruptcy kit which he says has helped 35,000 people declare bankruptcy since ABC's opening in 1973.
"We are prisoners of debt," he claims, "because the credit industry is such a big business. With interest and finance charges you can be paying off a bill for two or three years and hardly make a dent in the debt.
"Then the collectors start harasssing you, and things get worse," says Slavicek, who once repossessed cars for General Motors and quit in part "because of the coercive tactics they wanted us to use."
"By ending that debt, the bankruptcy act has to be considered the best consumer protection law that exists. We bail out the big corporations, like Chrysler, when they can't pay their bills. The bail-out for the little man is the new bankruptcy law."
The Bankruptcy Act of 1978, which became effective Oct. 1, 1979, is the first complete revision of the law since 1898.
"It realistically updates provisions of the old act," says attorney Richard C. Wills, director of George Washington University's Consumer Help Bankruptcy Clinic.
"Under the old act each state granted its own exemptions and most left the person practically destitute. Under the D.C. law you could only retain $300 worth of furniture, which, with today's prices, turned out to be a joke. And there was still an exemption for a horse or mule.
"The new law gives the honest debtor a chance for a fresh start," he adds, by allowing an individual exemption such as $7,500 worth of equity in a home and $1,200 of equity in a car. (Each state may choose to substitute its own exemptions in place of the federal exemptions -- as Virginia and a handful of other states have done.)
Although consumer advocates such as Wills say "the act is a good step forward for the debtor," creditor representatves, including the NCFA, claim "an alarming number of individuals are taking advantage of [the new law] for personal gain.
"One woman said she bought clothes, took a vacation then just declared bankruptcy to get out of debt," says spokesman Moroney, adding that NCFA has formed a Bankruptcy Task Force to seek solutions to possible abuses of the new law.
"The government's made it too easy to go bankrupt," sums up John J. Lockwood, vice president and general credit manager for Central Charge Service, who calls bankruptcy "a dirty word."
"You don't need to give it a second thought. You can just go bankrupt without worrying about the people who lend you the money and the obligation you owe."
But Wills says this type of abuser represents "a smalll minority, maybe 10 percent of the people who file for bankruptcy. Many of them, maybe 30 percent, get into some sort of financial trauma -- a huge medical bill, a spouse who leaves, a lost job.
"Then a good portion, 60 percent or so, just don't know how to handle money and get in the hole with a $10,000 income and a little piece of plastic."
Despite claims that the stigma attached to bankruptcy is gone or fading, Wills says "many of those who come to the clinic have a total moral aversion to bankruptcy.
"Like one Army nurse who came in with a $17,000-a-year income, two children and a husband who beat her and left her. He ran up over $2,000 in credit before she could cancel the cards. She'd been making small payments to all her creditors for seven months, but couldn't get out of debt. Her car got wrecked, and she couldn't afford to fix it.
"But on her way to the clinic by subway she said she almost turned back twice because she had a thing against bankruptcy. I told her what I tell others who have legitimate cause for bankruptcy but feel that way -- it's a federal law. People have a right to go into bankruptcy and shouldn't be ashamed."
Possibly the most controversial portion of the new act, says the Justice Department's Levine, is Chapter 13-a debt repayment plan that allows an individual with a regular income to consolidate all obligations and propose a repayment plan commensurate with his or her ability to pay.
The average court-approved Chapter 13 plan in the District and Eastern Virginia, says U.S. Trustee Dicello, requires repayment of about 35 cents on the dollar, with the balance canceledafter three years of payment.
However, "Some courts have approved repayment plans of $1 on a $100,000 debt," says Levine. "That has creditors pretty angry." Concern over "ambiguities" in the act, he says, has sparked some talk of hearings on proposed amendments.
Another area of dispute surrounding bankruptcy is whether or not someone who files for bankruptcy can ever get credit again.
"If present trends in consumer bankruptcies continue," warns the NCFA,"it may become virtually impossible for many of those who have declared bankruptcy to obtain credit again.
"In the past, many lenders were willing to give those who had declared bankruptcy a second chance."
But, says NCFA president Walter Kurth, "The tolerant attitude toward bankruptcies is fast evaporating."
That argument, counters ABC's Slavilcek, "is a ruse credit companies use to keep people from using their right to go bankrupt."
"Credit will depend on the individual credit manager reviewing the application," says GW attorneyy Wills. "they'll look at your situation. If you're poor, you may be out of luck."
But if you're a middle-class, upwardly mobile person whose debts have beenn discharged after declaring bankruptcy, says Wills, you may be a better credit risk. "After all, the law says you can't go into bankruptcy again for six years."