Newspaper article THE JOURNAL RECORD

Bad Debt Virus Spreads to Big Firms

Newspaper article THE JOURNAL RECORD

Bad Debt Virus Spreads to Big Firms

Article excerpt

NEW YORK -- The wave of bankruptcies that's dogged bankers trying to hold the line on problem loans shows signs of spreading to the rest of corporate America.

Companies such as Chrysler Corp., Sears, Roebuck & Co. and AT&T Corp. all said that more of their customers were having trouble paying off loans or bills.

The rise comes at a time when personal bankruptcies are breaking records and loan payments are chewing up a rising portion of household incomes. And with wages rising slower than consumer spending, more companies and lenders could be left holding bills that they can't collect. "The consumer is kind of tapped out," said Burnham Securities analyst David Healy, adding that the amount of money consumers devote to repaying debt each month "is as high as it's ever been." One big reason for the jump in past-due bills is the surge in bankruptcies. Personal bankruptcies rose 27 percent to 1.06 million in the year ended Sept. 30 from 832,000 a year earlier, according to the American Bankruptcy Institute, a nonprofit research group. Fourth-quarter figures aren't available yet. Business bankruptcies, while not at a record, rose 4.9 percent to 53,500 in the year ended Sept. 30, the institute said. Consumers also still love to borrow. Debt payments ate 17 percent of disposable personal income in the third quarter, up from 16.6 percent a year earlier. Debt expense now stands at its highest level since 1991, when it also reached 17 percent, the institute said. That's why Sears, for example, had a rise in unpaid bills from customers using its store credit card. To cover likely losses, the retailer set aside another $133 million in the fourth quarter to cover bad debts, bringing its reserve to $328 million. The company blamed part of the rise on "the industry-wide increase in personal bankruptcies and delinquencies. …

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