Take a married couple in their 30s or 40s with an annual income of at least $40,000. Give them credit card bills of $30,000. Put them behind in their mortgage payments. Where are they today?
Try bankruptcy court.
They are the couple next door and the family down the street. They are on the court calendar with Diamond Bar aerospace worker Joe A. Narvaez and Orange County accountant Dennis J. Zlaket.
There, too, are the names of the seemingly rich and famous--actress Margaux Hemingway and sportscaster Scott St. James--as well as the apparent town pillars, such as the San Bernardino County judge who went bankrupt with a household income of nearly $95,000.
At a time when the Southland is facing its harshest economic environment in at least a decade, cases have been piling into the region's overburdened bankruptcy courts in such huge numbers that the system is a shambles.
Fraud is pervasive, corroding public confidence and curtailing the courts' effectiveness. Bogus filings by the thousands clog the works, making the courts easy to abuse and difficult to run. The abuses "are a terrible problem," said William J. Lasarow, a Los Angeles bankruptcy judge.
The bankruptcy courts are supposed to be the place were debtors get fresh starts and creditors are repaid as much as possible. Today's reality is far different.
Straitjacketed by stingy budgets, the consumer bankruptcy courts have largely become assembly lines where even profligate credit card debts are usually written off without question. The main victims are banks that issue the cards--and other credit card customers who absorb the losses through higher interest rates and annual fees.
The private trustees assigned to supervise the cases are so swamped with work that the system's checks and balances have virtually ceased to function. Bankruptcy authorities admit that prosecution is difficult because garden-variety consumer abuse is so common and resources are scarce.
For the corporate bankruptcies known as Chapter 11s, where companies are seeking to reorganize their affairs and pay back creditors, the courts are something akin to roach traps: Businesses check in, but they rarely check out.
With ample justification, Southern California is routinely referred to as the bankruptcy capital of the nation. Close to 78,500 filings--32% more than a year ago and roughly double the level in 1985--were filed in 1991 in the Central District of California, which includes all of the Southland except the border counties of San Diego and Imperial.
Many of the nation's urban bankruptcy courts--notably in hard-pressed parts of New England, New Jersey and Florida--also are under severe strain. Yet, the breakdown is especially apparent here.
Unique to the Central District are its large population--more than 14 million people, an economy that is highly dependent on real estate for its health and the huge tide of sham bankruptcy petitions that are filed solely to head off apartment evictions, bankruptcy experts say.
The bankruptcy court in downtown Los Angeles is especially chaotic. Long lines abound, and clerks struggle to keep pace with the paperwork choking the system. Files are still not computerized.
The courts are a remarkable gathering spot for Southern Californians of all ages, colors and degrees of fame and fortune. What binds them is a pile of bills that have gotten way out of control.
One particularly intriguing window into this world is the personal bankruptcy filing of Duke D. Rouse. As presiding judge of the San Bernardino County Superior Court, Rouse filed for bankruptcy in mid-1989, despite an annual household income of nearly $95,000--a princely sum in a county where the median family income was about a third of that amount that year.
Though it escaped publicity, the filing eventually triggered an investigation by the top bankruptcy court administrator in San Bernardino, Timothy J. Farris, who said in a letter to the court clerk that the judge's action may be a "substantial abuse" of the system. The investigation is continuing.
Farris refused to be interviewed about the Rouse case; his letter did not state the nature of the suspected abuse. But court records indicate that the judge did not make complete financial disclosures in his initial filing.
Rouse left the bench in early 1990 to become an attorney in San Bernardino, the town where he was raised and has spent almost all of his 48 years. He refused comment on his case.
Bankruptcy authorities in Los Angeles say that as many as 40% of the consumer bankruptcies filed in the Central District may be abusive if not downright fraudulent. Though many are quickly spotted and dismissed, the cases gum up the system.
Especially irritating to authorities are the so-called "petition mills"--typically services that file bankruptcy petitions for unsophisticated, low-income renters facing eviction. A bankruptcy petition automatically halts an eviction proceeding.