The deeper costs of personal bankruptcy

Congress is in the midst of overhauling bankruptcy laws, making it tougher for people to file. A record 1.4 million people filed for bankruptcy in 1998, up more than 300 percent since 1980. The number dropped to 1.2 million last year, according to the American Bankruptcy Institute.

While bankers and credit-card issuers back the reform effort, consumer groups oppose it on the grounds that bankruptcy remains an essential protection for some people - one that shouldn't be made too restrictive. One group, myvesta.org, points out that the costs associated with bankruptcy include more than just hiring a lawyer. "After filing for bankruptcy, the average American pays almost 65 percent more each month to live in the same home and drive the same car," says Steve Rhode, Myvesta's president.

According to the group, those who go bankrupt pay interest rates that are 6 to 7 percent higher than people with good credit. For example, an average mortgage of $132,930 dollars with a fixed rate of 6.75 percent for 30 years equates to a monthly payment of $862. For post-bankruptcy filers, the interest rate jumps to 13 percent, which amounts to a monthly payments of $1,470. "The sum total of the financial and emotional costs of bankruptcy is almost immeasurable," Mr. Rhode says. "That's why people need to seek out every possible alternative."

(c) Copyright 2001. The Christian Science Monitor