By Stephen Cooper, CCH Washington Staff Writer

An 8.01 percent decline in the number of personal bankruptcies filed from the spring of 1998 to the winter of 1999 shows that Congress should not pass controversial bankruptcy reform legislation this year, according to the Consumer Federation of America (CFA), a Washington, D.C.-based consumer protection group.

CFA recently released statistics, compiled by University of Maryland economist Lawrence M. Ausubel, showing that there were 112,000 fewer personal bankruptcies in 1999 than in 1998, largely due to cautious borrowing by consumers and reduced marketing efforts by credit card lenders.

This drop in bankruptcy filings comes just as the Senate resumes its debate on S. 626, the Bankruptcy Reform Act of 1999. According to Travis Plunkett, CFA's legislative director, that decline could be short-lived if Congress passes legislation that restricts consumer access to bankruptcy while encouraging lenders to market and lend more aggressively to the least affluent and sophisticated borrowers.

"The bankruptcy bill would lead to a resurgence in the incidence of badly overextended consumers by encouraging lenders to lower their credit standards and solicit riskier customers," said Professor Ausubel. "Since the bankruptcy crisis is self-correcting, it does not require harsh legislation."

Lenders reduced their marketing and credit extension last year because of a declining response to direct mail solicitations, according to CFA, which is a non-profit association of more than 250 groups that seek to advance consumer interests through advocacy and education.

Stephen Brobeck, CFA's executive director, said a good way to accelerate the decline in personal bankruptcies is for card issuers to phase in an increase in the minimum payment allowed from the typical 2 to 3 percent up to roughly 4 percent. Brobeck said low minimum payments that barely cover interest obligations only convince borrowers they are OK as long as they meet all their minimum payment obligations.

"But at a certain point they realize their situation is hopeless and declare bankruptcy," Brobeck said.

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