Foreclosure Watch: Research Report Anticipates Increase in Bankruptcy.(SMR Research Corp.)(Brief Article)

A consumer lending research firm expects personal bankruptcy filings to grow substantially this year, with long-term trends and high consumer debt contributing to the problem.

SMR Research, Hackettstown, N.J., predicts that bankruptcy filings will rise by 14% to 28% this year. The prediction reflects trends that have driven up filings, such as the lack of health insurance, divorce, gambling, attorney advertisements and the loss of stigma associated with filing.

Changing consumer attitudes about bankruptcy have yet to be tested in an economic downturn, SMR said.

However, on a positive note, SMR Research president Stuart Feldstein said that mortgage refinancing may ameliorate the long-term trend.

"That is likely to shorten the up-cycle somewhat and reduce the pain," he said in a recent conference call. "Mortgage refis are extraordinarily helpful in reducing people's monthly debts."

But record high consumer debt service burdens and low personal savings rates have made high-risk borrowers increasingly vulnerable to a weakening economy, according to Morgan Stanley Dean Witter, which hosted the conference call and issued a report incorporating the SMR bankruptcy data.

And the "icing on the cake is consumer panic over the progress of bankruptcy reform legislation," which might make it more difficult to obtain bankruptcy and spur consumers to file before the law changes.