Today's scarlet letter

Easy credit: Bankruptcy may no longer carry a stigma with creditors but it might with employers.

May 07, 1999

BANKRUPTCY, like divorce, has become commonplace in American society. Just as failed marriages no longer carry a social stigma, personal bankruptcy no longer is an impediment to obtaining credit in the future. But as Baltimore County Deputy School Superintendent Elfreda W. Massie learned, declaring bankruptcy can hurt.

Ms. Massie, who was set to become Montgomery County school superintendent, and her husband filed personal bankruptcy last June. They declared $866,799 in debts they could not service in a timely fashion. As a result of Ms. Massie's bankruptcy, the Montgomery school board dropped her as a candidate.

The Massies were among 1.4 million Americans who declared insolvency last year. Creditors -- the nation's banks, credit card companies and mortgage lenders -- complain that many abuse the system.

The U.S. House of Representatives Wednesday approved a bill to make it tougher for people to erase their debts by imposing a "means test" to see if they could gradually repay or eliminate them entirely. Consumer groups and the White House object. Somewhat similar legislation has cleared the Senate Banking Committee.

While bankruptcies have tripled over 20 years, a national commission found this was not due to borrowers' unwillingness to pay or the lack of social stigma. Instead, it said the vast majority did not have sufficient income to erase their unsecured debts over five years.

Many Americans use credit to live beyond their incomes. The quest for large houses, more possessions and fancy vacations is akin to an addiction. Roughly 60 million households carry average monthly credit card balances of $7,000. The loss of a job, divorce, an accident or severe illness can bring financial chaos.

There also has been a sharp rise in available credit. From 1992 through 1998, credit card mailings increased 255 percent and unused credit lines by 250 percent, but debt increased only 137 percent. Moreover, insolvency is no longer a permanent blot. Most such households have no trouble obtaining credit cards or unsecured loans once they wipe out old debt.

But as Ms. Massie discovered, taking the bankruptcy route can have profound consequences.

Pub Date: 5/07/99

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