BANKRUPTCY RATE UP DESPITE BOOM.

Byline: Jesse Hiestand Daily News Staff Writer

Facing a steep mortgage and payments for delinquent taxes, a Simi Valley couple made the tough decision to declare bankruptcy six years ago when a forced retirement cut off their primary source of income.

The couple lost their new home, as well as a new motor home, in what proved to be a $150,000 setback. They kept only a single department store credit card that had seen little use until a relative asked them to help buy presents for Christmas 1994.

When the relative was later unable to pay the $1,000 credit card balance, the couple saw themselves again heading into the same sort of financial decline that had led to bankruptcy years earlier.

``I saw signs of the same thing happening,'' said the card holder, who asked not to be identified. ``I thought, we're not going to do this again; we're getting out of this nonsense.''

The couple turned to Consumer Credit Counseling Service, a nonprofit agency that helped them consolidate their debts and formulate a budget. Within a year, they had gotten rid of the debt - and their final credit card.

``If I ever got another credit card, I would insist that they keep a certain limit on it and never go beyond it,'' the card holder said.

Thousands of other Ventura County residents likely wish they had done the same.

Filings spike in '97

Bankruptcy filings rose a dramatic 75 percent in the second quarter of 1997, compared with the same period the year before. Experts blame easy access to credit, along with overconsumption, unexpected hardships such as a job loss or medical emergency, and an apparent weakening of the social stigma traditionally associated with bankruptcy.

``In a society that is a big spender, when you have credit wide open and people vulnerable to all types of advertising, they extend their credit beyond all reasonable limits,'' said John F. Kennett, a bankruptcy attorney in Ventura whose clients include one who racked up $147,000 in credit card debt.

``We've been in a long-booming economy - it's really cooking - and none of the danger signals are out there, so people are consuming their heads off,'' he said.

From April to June, a record 53,361 Californians filed for Chapter 7 (discharge of debts) and Chapter 13 (debt reorganization), according to CDBInfotek, a Santa Ana firm that analyzes public records. That represents a 9.4 percent increase over first-quarter filings.

In Ventura County, 1,324 residents filed for bankruptcy compared with 755 during the second quarter of 1996. Ventura County's 75 percent jump was second only to Imperial County, which saw a 98 percent increase in filings.

Genny Sonnenberg of the Consumer Credit Counseling Service said there is no clear-cut reason why rates are up here.

One possibility is population. Compared to other counties, Ventura County's relatively small population of about 715,000 more readily reflects fluctuations in such figures, she said.

Yet this is a curious trend since bankruptcy rates usually go down when the economy is robust, and Sonnenberg says this may be indicative of economic optimism gone overboard.

Too much of a good thing

``Consumer debt is up because people are making it - getting by - with credit. They're living paycheck to paycheck more so than they used to,'' she said.

In fact, the average American spends $1.03 for every $1 earned, she said, citing statistics from 1994. At the same time, the average person receives 36 credit card applications each year.

``The credit card companies are crying because there's a lot of delinquencies, but part of the reason for that is they gave credit to people who were marginally risky,'' she said. ``When those people encounter a problem - a straw that breaks their financial back - who are they not going to pay first? The credit card companies.''

But credit card company officials say it is unfair to blame them for their customers' irresponsible financial habits.

``Credit cards can be a wonderful tool if handled responsibly,'' said Maria Mendler, a spokeswoman for Citibank.

``Today, having access to credit enables you to make purchases in a convenient way, but consumers in general need to look at all of their planned purchases,'' she said. ``Clearly, people need to manage their debt and finances responsibly.''

Bankruptcy attorney Ivan Trahan said he was not surprised when construction workers and real estate brokers dominated his business during a downturn in the housing market earlier this decade.

Now, he says, his clients are more often accountants, fellow attorneys and other professionals. They are usually under age 40, married, with two kids and a monthly income of $2,000 to $5,000.

Look for a red flag

The other common element is that they have fallen behind in their credit card payments and been crushed by high interest rates, he said.

``When (the debt) approaches about 30 percent of your income, the red light should go off,'' he said.

Many of these problems can be traced to the early 1980s, when credit card companies raised interest rates and credit lines while lowering monthly payments and applying these payments toward interest more so than balance, he said.

Trahan says clients take desperate measures to avoid bankruptcy, such as cashing out retirement plans to pay their debts.

But once they've exhausted all other alternatives, consumers are less hesitant than in the past to turn to the courts for financial relief.

``Walt Disney did it three times, Donald Trump has done it. It's now considered a good business tool,'' said Westlake Village bankruptcy attorney Jeffrey Graff. ``People are more willing to file bankruptcy now. It's like divorce 30 years ago. That also had a great stigma. But now one out of two married couples are doing it.''

Lined up to file

The crush of bankruptcy cases was evident Thursday, when more than 150 people packed the conference room at the monthly creditors' meeting in the Ventura County government center. Most were couples with pensive faces, documents clutched in hand and a lawyer at their side.

They lined up 20 deep for a mandatory meeting with a trustee appointed by the U.S. Trustees Office. Under oath, they had to swear the assets and debts listed in their filing were correct.

The line of questioning including, ``Is this everything you have of value?'' and ``How did you determine the value of this property?'' was over in two minutes.

Meanwhile, creditor representatives hovered in the hallway, ready to make ``reaffirmation agreements'' with debtors so goods such as appliances would continue to be paid off, albeit at a lower monthly rate.

The bankruptcy process these days is rather simple and routine. After this meeting, most people will receive a notice by mail in three months that their debts have been discharged.

There are obvious advantages to filing bankruptcy when there is no other option. It will put a stop to a home foreclosure and calls from debt collectors while making sure most personal property and household goods are off-limits to creditors.

But there are several downsides besides a damaged credit rating.

In some cases, credit companies see an attractive customer in someone who has recently gone through a bankruptcy, Graff said.

One of his clients continued to earn $5,000 a month after filing for bankruptcy. Since this person is legally entitled to his entire income but cannot file bankruptcy again for six years, a loan application quickly landed in his mailbox.

``He has no debts, still has the income and cannot file another Chapter 7 for another six years,'' Graff said. ``He's not that risky and he's ready for credit. It can be dangerous, and I warn people not to get too deep into it.''

TIPS FOR AVOIDING FINANCIAL TROUBLES

Genny Sonnenberg of the nonprofit Consumer Credit Counseling Service offers the following tips to help avert financial crisis:

Track purchases and expenses. Make a daily list of expenses, no matter how small. At the end of a month, study the list to see where your money is going.

Make a budget. Using the expense list, cut back on unnecessary spending and apply that money where needed, such as eliminating a debt or creating a vacation fund.

Create an emergency cash fund. Such a ``buffer zone'' of three to six months' income could prove critical to avoiding bankruptcy should a financial problem arise.

Tally all credit card purchases. Keeping track of the mounting debt may help a person avoid the sudden shock of a maxed-out line of credit.

Develop a strategy to pay off multiple credit cards. Often the best way is to pay off the card with the lowest balance first and then tackle the one with the next highest balance.

Watch for warning signs. You don't want more than 20 percent of your income going to pay off debt. Another danger sign is relying too heavily on credit cards for everyday purchases such as groceries. Trouble may be on the horizon if you are using one credit card to cover the monthly payment of another card, or are only able to make only the minimum monthly payment on a credit card.

The Consumer Credit Counseling Service, a nonprofit agency that works on behalf of creditors, holds workshops and seminars to help people get their finances in order. With offices in Simi Valley, Ventura and Oxnard, the organization has been helping consumers draft budget and repayment plans for more than two decades. For more information, call [phone].

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