The bank card industry lost an estimated $1.3 billion in 1991 to personal bankruptcies in which the consumer could have repaid the debt, according to research compiled by Visa U.S.A.

That amounts to build a third of the $3.5 billion written off by card issuers as a result of personal bankruptcies, Visa officials said.

Visa defines a "fraudulent" or "abusive" bankruptcy as one in which the party declaring bankruptcy still has discretionary income that could be used toward paying all or part of his debts.

Bank card issuers generally have low priority on the list of creditors that must be repaid, so they tend to write off many bad debts.

Study in California

The figures compiled by Visa are based on a study of 2,500 bankruptcy petitions in the central district of California. Visa projected the percentage of abusive bankruptcies found in that district onto the figures for the nation at large.

While the actual number of fraudulent filings represents only about 5% of all bankruptcies, the dollar amount involved has been huge. That's because the relatively small number of consumers who abuse the system tend to run up their credit card debts before filing for bankruptcy, according to Visa officials.

Consumers also bear the cost of bankruptcies, with about one half of the fees they pay for the use of bank cards going toward paying off bankruptcy losses, Visa said. In 1989, the cost of bankruptcies for each active bank card was $13.00. In 1995, the organization expects it to reach $25.00.

High Incidence of Fraud

Visa estimates that about 32% of the losses on bankruptcy filings in 1991 were fraudulent and abusive. That percentage is down slightly from 1990, when about 38%, or $830 million, of the total $2.25 billion lost by the industry was a result of fraudulent or abusive filings.

In 1989, the percentage was similar, with $1.75 billion lost by the bank card industry to personal bankruptcies, about $650 million of that abusive, according to the bank card association.

Visa and MasterCard International plan to introduce a bankruptcy notification service to be available next summer that will get information about new bankruptcy filings to members in 72 hours, instead of in the 10 to 15 days that it takes now. The computer system is under development.

Early notification will give banks time to go to bankruptcy hearings, "where there is the highest probability of banks' getting money back without paying a lot for pursuit" of the former customer, said Kenneth R. Crone, vice president of the issuer risk at Visa.

Approach for Banks

"Banks should challenge bankruptcies when there's an indication of fraud," said Mr. Crone. By challenging a filing, banks can recover about 80% of the money lost, he added.

Visa said an issuers' clearing house instituted in 1989 has helped slow the growth of fraudulent bankruptcies, from 38% of all bankruptcies in 1989 and 1990 to 32% in 1991.

The clearing house has several components. The service, offered by Visa, screens applications for new credit cards for fraudulent information.

The system also checks for the use of incorrect addresses, such as hospitals or prisons, and the use of bad Social Security numbers, or numbers that belonged to people who have died.

If an existing account is part of a bankruptcy filing, the program helps banks recover their losses.

When a member of the program receives a notice of bankruptcy, the bank can review the account for indications of fraud, including abrupt changes in behavior such as a sudden use of cash advances, or a sudden increase in transactions.

Lawyers Available

If there is evidence of fraud, the issuer can get in touch with a network of lawyers to pursue the claim. "When a consumer is in trouble, he tends to make lots of purchases below the floor limit to avoid having the card taken away or canceled," said Mr. Crone.

Currently, card issuers pursue about 5% of total bankruptcies through this program, Mr. Crone said. About 350 banks and about 100 law firms are members of the clearing house. Between 75% and 80% of all bank cards issued are covered.

In a separate survey of 150 banks around the United States, Visa found that in an average bankruptcy filing, the consumers have overdrawn by $2,700. That's higher than the average amount written off for simple nonpayment, about $1,447.

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