For the first time in four years, California has reported a quarterly decline in bankruptcy filings, according to CDB Infotek, a public records information services business.

Because California residents file for such a large percentage of the nation's bankruptcies, the state is often viewed as an indicator of consumer credit health.

California bankruptcy filings-by both businesses and individuals-had increased each quarter since the fourth quarter of 1993, mirroring a national trend.

But that trend was broken this summer. Bankruptcy filings in California dropped from 53,624 in the second quarter to 50,650 in the third, a 5.5% decline.

In August, 16,432 California residents filed for bankruptcy, or 15% of the national total. The California total was 5.2% lower than in July, according to CDB, a Santa Ana, Calif., division of ChoicePoint Inc., Alpharetta, Ga.

Chapter 11 filings, which permit businesses to reorganize their obligations to creditors, have also been waning along with Chapter 7 and 13 filings, which are reserved for individuals. In the third quarter, 349 Chapter 11 filings were recorded in California, 15.9% fewer than in the same period of 1996.

John Karevoll, a CDB financial analyst, said California's bankruptcies are declining because "the state's economy is growing at a much more rapid pace than that of the rest of the country."

The state has been recovering from a particularly profound recession, Mr. Karevoll said. "California is climbing out from a much deeper hole" than other states, he said.

In the United States, bankruptcies reached an all-time high of 1.16 million last year, according to the Bankruptcy Issues Council, a Washington-based group that represents MasterCard, Visa, and their member banks on bankruptcy reform issues.

And despite California's promising third-quarter news, 1997 bankruptcy totals continue to rise there and elsewhere.

The state's total of individual bankruptcies for the first three quarters of 1997 was 136,539, or 24.3% more than last year.

California also set a record in April, with 18,552 filings, the most ever in one month. The April total was 11.4% higher than August's.

Many economists have predicted 1997 will be a record-breaking bankruptcy year in both California and the United States.

Bejan Esmaili, an investment consultant at Morgan Stanley, Dean Witter, Discover & Co. in Oakland, Calif., said low interest rates are one reason that so many private businesses have gone bankrupt recently.

"It's a numbers game," Mr. Esmaili said. "Because interest rates have been low, more people are prone to open small businesses. This in turn creates a higher population of people who may have to eventually file for bankruptcy."

The American Bankers Association and other banking groups have long argued that the existing law makes bankruptcy too easy an option. Congress has been considering bankruptcy reform but has not embraced any measure that pleases the industry.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.