EVEN MORE BANKRUPTCY FILINGS EXPECTED THIS YEAR

August 28, 2001

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SMR Research, a consumer lending research firm, yesterday said that it expects personal bankruptcy filings to grow substantially this year, with long-term trends and high consumer debt contributing to the problem, Thomson Financial Media reported. The Hackettstown, N.J.-based SMR Research predicts that bankruptcy filings will rise by 14 to 28 percent this year. The prediction reflects trends that have driven up filings, such as the lack of health insurance, divorce, gambling, attorney advertisements and the stigma associated with filing.

Record high consumer debt service burdens and low personal savings rates have made high-risk borrowers increasingly vulnerable to a weakening economy, according to Morgan Stanley Dean Witter, which issued a report incorporating the SMR bankruptcy data.

And the “icing on the cake is consumer panic over the progress of bankruptcy reform legislation,” which might make it more difficult to obtain bankruptcy and spur consumers to file before the law changes. “Each time this legislation receives a lot of publicity, there is a panic rush to file for bankruptcy,” SMR Research President Stuart Feldstein said.

Even if Congress fails to enact bankruptcy reform, publicity about the legislation could generate more filings. As a result, lenders may see the worst of both worlds, according to the two firms. Lenders may not get relief, but may see filings rise as a result of headlines about the issue. SMR predicts that bankruptcy filings will decrease next year, with the new bankruptcy law curtailing filings by 10 to 30 percent if it is enacted, the company said. By contrast, Morgan Stanley’s Kenneth Posner says filings are likely to rise again next year.