precious little jubilation in the lending community.

Lenders, who persistently point to the high rate of filings as one of their top business problems, may be concerned that a turnaround will undercut their effort to reform bankruptcy laws and make it easier to collect on poor credits.

The annual bankruptcy total has climbed steadily since 1995, to a peak of 1.4 million last year, according to the Administrative Office of the U.S. Courts, which tracks such information. This year, bankruptcies are on pace to decline to 1.3 million.

The bankruptcy code has not been significantly revamped since 1978. The credit industry has been lobbying fiercely for passage of a bill that would make it more difficult for consumers to file. Proponents of this reform are facing virulent attacks from consumer advocacy groups.

The Bankruptcy Reform Act of 1999 was dealt a serious setback Sept. 21 when the Senate voted -- mostly along party lines -- against cloture, which would have closed off amendments and forced an up or down vote.

The cloture vote not only reflected the deep rift between Democrats and Republicans on the bankruptcy issue but also signified flagging interest in bankruptcy reform on Capitol Hill, according to some observers.

A lobbyist for a large credit card company, who spoke on condition of anonymity, said that lobbyists for financial institutions "are just not talking about bankruptcy right now."

"I don't know if they have lost interest in the bill, but I know they are spending their time on HR 10," the financial modernization legislation now in a House-Senate conference committee.

To ardent backers like Visa U.S.A. and MasterCard International, bankruptcy reform is still a top priority. Evidence of their commitment can be seen in such insider publications as Roll Call and Congress Daily, where ads have appeared stating: "Bankruptcy reform helps women and children. Distorting the facts about reform helps no one."

Consumer advocates and others opposing the bill argue the opposite -- that women and children would be harmed if bankruptcy laws were tougher. They say payments to creditors would be given greater weight under the proposed legislation than child support payments.

"Politically, I think (child support) is the only place that the consumer credit industry feels that it's vulnerable," said Charles J. Tabb, a professor at the University of Illinois College of Law. Mr. Tabb wrote a letter to members of Congress on behalf of more than 80 law professors who oppose the legislation.

Jeffrey K. Evanson, a credit card industry analyst at U.S. Bancorp Piper Jaffray, said some card companies are lukewarm about bankruptcy reform.

"Several of the credit card companies have dropped their support for the bill" because its economic benefit is too small, said Mr. Evanson, declining to name names. He tracks such issuers as American Express Co., Metris Companies Inc., MBNA Corp., Providian Financial Corp., Associates First Capital Corp., and Capital One Financial Corp.

Mr. Evanson estimated that 2% to 4% of chapter 7 bankruptcy filings -- those in which consumer debt is completely forgiven by the courts -- would go into chapter 13 repayment plans if the proposed legislation were enacted. The analyst described this benefit as a "pittance." He said he was factoring in that, historically, two-thirds of chapter 13 repayment plans fail.

The lending industry says $2 billion to $4 billion of the $45 billion of debt lost to bankruptcy in 1998 could have been recaptured under the proposed legislation. Put another way, lenders expect 8% to 10% of chapter 7 filers to be moved into chapter 13 plans.

Bradley A. Berning, an associate of Mr. Evanson, said their firm's research focuses on a provision that would let auto lenders recoup more debt than the current law allows. The section appears in the Senate version of the bankruptcy bill.

The proposal would eliminate what is known as "cram downs," the losses auto lenders face when the amount of a loan exceeds the value of the automobile. For example, under today's rules, the underwriter of a $10,000 loan for a car worth only $8,000 when the owner files for bankruptcy loses $2,000, Mr. Berning said.

"This is where the card companies are taking a hit," Mr. Berning said. "Under the current legislation, unsecured lenders get a piece of the pie, but under the new legislation, they would get less of the pie."

Jeff Tassey, senior vice president of the American Financial Services Association, a Washington-based organization representing finance companies and other consumer lenders, said opponents of the legislation have "tried to drive a wedge between parts of the coalition, but we (lenders) have remained united on this."

An executive for one of the top five credit card companies, who did not want to be identified, confirmed that the proposed legislation "is not what the credit card industry had envisioned." In particular, auto lending concessions "would diminish what is available to card lenders," the executive said.

The portion of the bill relevant to auto lenders was added in the Senate last year by Sen. Spencer Abraham, R-Mich. The House version also mentions secured lenders, but Sen. Abraham specifically identifies auto lenders.

Mr. Tassey said he expects action on bankruptcy reform this year. Pointing to historical fluctuations in the bankruptcy growth rate, he called the recent decline in filings "temporary."

William P. Binzel, vice president of public affairs at MasterCard, said the dip in filings has no impact on the credit industry's effort to change the law. "This has never been about a numbers situation," he said.

Rather, lenders "have been focused on the fundamental flaw in the bankruptcy system," Mr. Binzel said. Lenders, who contend that some bankrupts could afford to repay more than is now required, favor changes that would push more bankruptcy filers into repayment plans.

Some observers view Mr. Binzel's argument as disingenuous. "If the complaint is that bankruptcy has become too easy for people, how is that supported by declining numbers of bankruptcy?" Mr. Evanson said.

Sen. Paul Wellstone, D-Minn., echoed this sentiment during the recent debate on cloture. "The entire concept of the bill is wrong," he said. "It addresses a 'crisis' that appears to be self-correcting."

Bankruptcy experts disagree. Mr. Evanson projected that that filings will continue to decline through 2000 but nudge back up again in 2001. He attributed the decline to tightened underwriting by banks, low interest rates, and a strong job market.

Stuart A. Feldstein, president and founder of SMR Research Corp. of Hackettstown, N.J., estimated that bankruptcies will rise 8% to 15% in 2000.

Mr. Feldstein said a rise is inevitable, primarily because consumers carry too much debt and save too little. When the economy starts to sputter, he said, vulnerable borrowers will begin filing for bankruptcy.

On a per capita basis, for every dollar consumers earn, they owe $1.12, according to government data cited by Mr. Feldstein. Moreover, the personal saving rate has dipped from more than 8% of annual income in 1980 to less than zero today, he said.

"Rich people have a wonderful savings rate," he said. "That tells you that middle-income and poor people must be spending scads more than they make, and that's not healthy."

Mr. Feldstein attributed the recent decline in bankruptcies to low interest rates in 1998. A decline in filings typically lags rate reductions by about a year, he said. In 1999, rates inched up.

One factor contributing to a potentially dangerous environment for bankruptcy, he said, is that each year lenders increase the amount of credit available to consumers through credit cards. Credit available but unused totaled $569 billion in 1992 and more than $2 trillion in 1998.

"I'm not concerned about the $500 billion of credit card debt -- it hasn't been growing that fast -- but I am concerned about approved credit lines," Mr. Feldstein said.

SMR Research is also concerned about the rising percentage of approved mortgages -- 39.4% today versus 27% in 1990 -- that are going to single people, who are viewed as worse credit risks than couples. Also, more than 60% of mortgages require down payments of less than 20%.

Mr. Feldstein said he strongly disagrees with the perception that the need for bankruptcy reform is growing less urgent. "The bankruptcy decline is shallow and temporary," he said. "Without reform, we will see it going back up again."

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