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MONDAY, OVM 13,1995 PAGE 7 PRESS-REPUBLICAN becoming a fact of life By FARRELL KRAMER AP Business; Writer NEW YORK (AP) - There's not much honor among borrowers anymore. Orange County, Calif., home to Disneyland and a symbol of the good life in America, filed for bankruptcy protec- tion. Rockefeller Center, New York City's Art Deco symbol of U.S. financial might, has sought similar refuge. Americans are falling behind on their credit-card bills even as they pile on more debt. People are declaring bankruptcy at a rate of nearly twice a minute. And the U.S. government is moving toward what could become its first default ever. The trust between borrower and lender, which for generations of Americans repre- sented a solemn pact, is fraying. Not paying your bills, it seems, doesn't carry the stigma of shame or ruin it once did. \What's really happening is bankruptcy is becoming every bit as much a corporate tool as a hostile bid,\ says Wilbur Ross, senior managing director at the invest- ment bank Rothschild Inc. and a specialist on corporate reorganization. \It Debt revolt Mexican middle class up in arms BvSUSANAHAYWARD Associated Press Writer MONTERREY, Mexico (AP) - Crushed by debt and ready for a fight, a huge alliance of middle- class Mexicans has become a powerful force that is pressuring. the government for relief from a 10-month-old economic crisis. The alliance lacks the machine guns or ski-mask disguises of the Indian rebels who shook Mexico with a guerrilla war. But claim- ing a membership of more than 1 million mostly educated, middle- class citizens, the \El Barzon\ movement has spelled trouble for Mexico's leaders. El Barzon means \oxen yoke.\ Complaining they've become slaves to banks and government policy, its members have demon- • strated at banks, blocked roads, lobbied in Washington — even publicly undressed to illustrate their economic desperation. \We are people who want to pay our debts but can't,\ said Liliana Flores, 40, a former con- gresswoman and one of the movement's leaders. \We are here, not hiding anything, not covering our faces.\ The Zapatista rebels stormed the Mexican stage when they launched a rebellion on Jan. 1, 1994, as the North American Free Trade Agreement with the United States and Canada took effect. By contrast, El Barzon began in 1993 as a grassroots farm movement opposed to high inter- est rates on loans, and it remains peaceful. Membership mushroomed' after the peso's December 1994 devaluation plunged Mexico into recession, threw more than 1 million people out of work and led to skyrocketing interest rates, and double-digit inflation that walloped the middle class. The crisis made Barzonistas out of credit card debtors, mor- tgage holders, and people who couldn't pay off their cars, TV sets and household appliances. In Mexico, interest rates can change while a loan is outstand- ing and are now around 50 per- cent. Many debtors are being forced to pay back more than double their original loans. The Barzonistas — who en- compass small business owners and ranchers, housewives and professionals — want debts restructured and an end to prop- erty foreclosures. President Ernesto Zedillo responded Aug. 23 by announc- ing a $1.5 billion government plan with the banks to cap high interest rates for 6 million con- sumers unable to pay off debts. \This agreement is one step more toward the solution of the crisis,\ Zedillo said. But many called the effort in- adequate. Independent analyst Sergio Sarmiento said the plan blunted the Barzon movement somewhat, but the government victory was only partial as thousands refused to sign onto the plan. Sarmiento said, however, that he believed El Barzon's own fig- ures of over 1 million members were exaggerated and that perhaps tens of thousands are hardcore\ members. Still, \they have enough people to generate a lot of political trouble.\ Indeed protests have been sporadic but eye-catching. The Barzonistas have blocked highways with tractors, marched in cities and carried coffins in Mexico City and Guadalajara to protest Zedillo's relief efforts. no longer has anything like the curse that it had a generation or so ago.\ That also extends to ordinary Ameri- cans, who are using bankruptcy laws in increasing numbers. For the 12 months through June 30, more than 800,000 peo- ple sought bankruptcy, vs. 80,000 in 1958, federal statistics show. This doesn't mean bankruptcy is worry-free. The penalty for individuals can be much higher than it is for corpora- tions. The blot of bankruptcy can hurt your ability to.borrow money for years. Up until now, the promise to repay has been kept by the U.S. government. But a political struggle in Washington over the budget has raised the possibility of a default. The federal debt limit, now $4.9 trillion, must be raised within a few weeks or the government won't be able to borrow money to pay bills coming due. The Republican-led Congress has refused to raise this so-called debt ceiling unless the Clinton administration agrees to the GOP's budget plan. Just what would happen if Uncle Sam failed to pay the bills is a matter of opi- nion. It has never happened. House Speaker Newt Gingrich has said financial markets would shrug off a default as a purely political event. John Kenneth Galbraith, the Harvard economist, said a federal default would be devastating. \The one thing that is assumed by all people in the financial world is that the federal government of the United States pays its debts,\ he said. \If the debt limit were not raised and the government were not able to meet its obligations, this would be a financial disaster.\ Some believe that stock and bond prices would collapse, throwing the U.S. economy into turmoil and causing effects that could ripple around the globe. Regardless of who's right, just the debate about default itself shows that the once unthinkable is now thinkable. That change in attitude occurred over many years. U.S. corporations, municipalities and individuals have become more financially sophisticated, using American bankruptcy laws as a way to help distressed people and businesses, not ruin them. Many settlers of the American colonies actually came to their new land to escape the repression of debtors' prisons and the harsh consequences of default. U.S. bankruptcy laws, unlike the laws of some other nations, seek to let people preserve their assets rather than liquidate them. \There are any number of reasons why people are in trouble. There are probably 800,000 different reasons,\ said Beverly Tuttle, president of the Consumer Credit Counseling Service of Connecticut, a non- profit company that helps overextended debtors devise ways to pay bills. \In gen- eral, people are increasing their consumer debt at an alarming rate.\ High debt, from credit cards and other sources, can turn to trouble quickly in the event of a lost job, illness or other unfore- seen event. That's when bankruptcy becomes an option — though, Tuttle says, it's better to try and work out repayment terms directly with creditors. A personal bankruptcy filing remains on an individual's credit report typically for seven to 10 years, making additional borrowing for homes and autos difficult, though not impossible. bankruptcies, a good barometer of financtal distress, are running at the rate of nearly two filings per minute. 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