Fewer and fewer Massachusetts residents are finding themselves with empty pockets. In the first three months of this year, bankruptcy filings in the Massachusetts fell 17.9 percent, while filings across the country dropped 8 percent.

Even as bankruptcy filings continued a downward slope, the number of filings made during the 12-month period ended March 31 is still 33 percent higher than those filed in 1996, according to the American Bankruptcy Institute. The debate over bankruptcy reform continues in Congress, although President Bill Clinton has promised to veto the bill if it advances to his desk.

Last year a total of 1.3 million bankruptcies were filed nationwide, down 8.5 percent from 1998. Bankruptcy filings surged in the late 1990s, setting national records in 1996, 1997 and 1998.

Banks and credit card companies have been among those pushing for bankruptcy reform, calling for a means test to make it harder for consumers to file for Chapter 7, under which debts are discharged. Under the test, consumers who can afford to pay back some of their debts will be required to file for Chapter 13 bankruptcy, under which they will have a three- to five-year repayment plan.

The House and Senate passed reform bills this session, but President Clinton opposes the measures, which he believes are too hard on consumers.

“I would like to sign a balanced consumer bankruptcy bill that would encourage responsibility and reduce abuses of the bankruptcy system on the part of debtors and creditors alike,” Clinton wrote in a letter to House Speaker Dennis Hastert. “The majority of debtors turn to the bankruptcy system not to escape bills they can afford to repay, but because they face real hardship, uninsured medical expenses, unemployment or divorce. We can target the abuses without placing unnecessary barriers before those in need of a fresh start who turn to bankruptcy as a last resort.”

The majority of personal bankruptcies are filed under Chapter 7. In the first quarter of 2000, 215,454 consumers filed for Chapter 7, down 7.8 percent from 233,925 the year before. A total of 94,007 people filed for Chapter 13 in the first quarter, down 0.6 percent from 94,645 in the second quarter of 1999.

During the 12-month period from April 1, 1999, to March 31, 2000, a full 97 percent of new bankruptcy cases were filed by consumers rather than businesses.

The bankruptcy reform legislation in Congress has seen many incarnations in recent years. In 1999 the U.S. House passed a bill that was stricter on consumers, while a Senate version was more consumer-friendly. If bankruptcy reform is not addressed this summer, it could become an issue in the presidential campaign.

The Massachusetts Bankers Association supports reforming the law to eliminate cram-downs on auto loans when borrowers declare bankruptcy. In addition, banks have taken hits when consumers move into a new home soon before declaring bankruptcy, and are protected by state homestead exemptions.

“There are a considerable number of bankruptcy filings and there needs to be bankruptcy reform because a number of people are filing that could afford to pay their debts or at least a portion of their debts,” said Tanya Duncan, the MBA’s director of federal and regulatory legislative policy. “We’d like the bankruptcy code to be reformed so that it’s needs-based.”

Boston bankruptcy attorney Richard N. Gottlieb favors reforming the bankruptcy code, but opposes the bill in Congress. The proposed reform would complicate the process of filing for bankruptcy, and many people file without the assistance of an attorney, Gottlieb said.

“We really don’t need the kinds of bankruptcy reform that certain members of Congress have been pushing at the behest of the credit card industry,” Gottlieb said. “We need reform that’s more even handed.”

With the legislative session drawing to a close and the presidential election nearing, Samuel J. Gerdano of the American Bankruptcy Institute said it is doubtful that bankruptcy reform legislation will be adopted this year.

“It’s still on the endangered list,” Gerdano said. “It’s certainly less than a 50/50 proposition at this point.”

‘Partisan Politics’
If anything happens with the bill, Duncan said, it will come at the end of the session. Proponents are considering strategies of advancing the bill, including bringing it to the floor in a conference report or attaching it to an existing conference report as an amendment.

Calling the bill a “hack and slash job,” Gottlieb said the legislation does not adopt the recommendations of academic studies and bankruptcy judges.

“When you get partisan politics involved in all of this, it damages a system which is not otherwise truly broken,” Gottlieb said.

Opinions differ on what has caused bankruptcy filings to drop in the last year. Gerdano credited the strong economy with lower bankruptcy filings. But attorney Gottlieb said filings are closely tied to the amount of short-term credit in circulation, such as personal loans, car loans and credit cards.

“Filings are dropping all over the country as a result of the strong economy,” said Gerdano, ABI’s executive director. “Consumer spending has been very strong and debt so high … consumers are at risk if the economy turns.”

Filings have dropped enough that Gottlieb has noted a slowdown in his practice.

“Part of it is the fact that when interest rates rise, banks and other entities tend to tighten up on credit,” he said. “It’s also self-regulated. People are trying to avoid filing bankruptcy.”

Massachusetts is among the states with the highest drop in bankruptcy filings this year. In Northern California, filings fell almost 25 percent, while Southern California saw an almost 20 percent drop. The Eastern District of New York posted an 18.4 percent decrease in bankruptcy filings, compared to the 17.9 percent drop recorded by districts in Massachusetts and New Hampshire.

The regions of the country with the highest decline in bankruptcy filings tend to be areas with major population centers and technology companies. The strong economy and resulting stock options has kept some consumers in those areas afloat, Gottlieb said.

The areas of the country with the smallest decline in bankruptcy filings in the first quarter were parts of Ohio, Alabama, West Virginia, South and North Carolina and Arkansas.

“Those states that don’t have the major technology centers and have depended more on a manufacturing type of economy are have a harder time reducing the number of bankruptcy filings because there isn’t the kind of economic infrastructure or uplift as in states that do have the technology base,” Gottlieb said.