Toru Okada, 50, had a well-paid job at a top tier Japanese bank until a friend defaulted on debts five years ago and pulled him into a world of "dark money" or yamikin.
As his friend's guarantor, Okada, not his real name, saw his Japanese Yen 600,000 (US$5,085) a month salary heavily pared down by debt repayments. When the bank found out about the problem, they asked him to retire to avoid any messy entanglements.
Before filing for bankruptcy last year, Okada had racked up Japanese Yen 11.8 million in debts, piling up loans to pay for previous ones from consumer finance firms which legally charge 29.2 percent in interest, and from illegal yamikin loan sharks, whose rates reach thousands of percent.
PHOTO: REUTERS
"This is an entirely typical case," said Okada's bankruptcy lawyer, Kenshi Nishida.
Nishida estimates there are three to four million others in Japan like Okada, a "reserve army" of those on the brink of bankruptcy whose debt payments take up over half of their monthly incomes.
"These are people who have no choice but to borrow more to pay off their loans. And their debts are just increasing," he said.
Worse than consumer creditors are yamikin operators, Nishida said, who call up troubled borrowers based on leaked financial data and offer to transfer money into their accounts at such exorbitant rates as Japanese Yen 10,000 in interest on a Japanese Yen 30,000 loan -- due in 10 days.
Debt collectors embarrass and intimidate borrowers by turning up at their to place of work, call in the middle of the night, or worse, Nishida said.
"I have had clients who have been virtually kidnapped. Females have been taken and forced into prostitution. And these people tell them `this is how you will work off your debts' without batting an eyelid," he said, adding that Okada is one of 500 clients with similar problems.
The rush to lending has helped push up the number of personal bankruptcies filed at courts across Japan in 2001 to 160,457 cases, a 125 percent increase from five years earlier, according to the Supreme Court.
Nishida said his firm, Home Lawyers, sees 50 new clients a day and gets up to 1,500 inquiries a month, thanks to advertising that boldly beckons in subway trains: "Troubled by credit loans? We are a must see."
With 200 staff and 13 lawyers, Nishida's team seems at times like a production line, dealing with some 100 clients a day, 85 percent of whom want help to rework their debts, declare bankruptcy, or for legal protection from underworld collectors.
One-third of his clients' problems began with expensive housing loans taken out near the height of the economic bubble 15 years ago, Nishida said, and were compounded by job losses due to corporate restructuring and business failures in a stagnant economy.
Nishida blames banks and consumer credit firms for the increase in personal bankruptcies.
"Even the major banks are jumping on the bandwagon. For banks, there are very few places to lend money and profit from, except directly from consumers.
"They are delving into new markets all the time, and competition is very fierce. In other words, the lending rush is on."
According to the Japan Consumer Finance Association, despite the slumping economy, outstanding loans by 93 member companies rose by 54.9 percent to Japanese Yen 6.39 trillion as of March 2001 from five years ago.
Defaults on those loans have stayed a steady 3.1 percent from 2000 to 2001, while legal intervention on behalf of troubled borrowers fell from 2.2 to 2.1 percent of all cases. Personal bankruptcy accounted for a steady 1.5 percent.
A spokesman for a major consumer credit firm said lawyers themselves and the poor economy are to blame for the increase, not lenders. An October 2000 law that allowed lawyers to openly advertise their services invited more loan defaults, he said.
"We believe the advertisement law change is the trigger to the increase in personal bankruptcies," said the spokesman, who did not want his company identified.
"In the past, people used to be quite reserved about resorting to lawyers to solve their problems, but now it has become very easy."
Indeed, many of Japan's 18,850 lawyers admit their businesses are booming due to the increased number of failures, corporate as well as personal.
Hideki Matsushima, chief lawyer of the Tokiwa Sogo firm, said the number of lawyers at his firm, which focuses on corporate bankruptcy, has nearly doubled to 15 in the last three years.
"We are getting busier and busier as the number of cases grows and grows," he said.
Large corporate failures hit the second highest level since World War II in 2002, up 0.1 percent from a year earlier to 19,458, according to research firm Teikoku Databank. Their liabilities hit 13.76 trillion yen, the fifth largest amount since the war.
Shuichi Gonda, who works for the law firm Torikai Sogo, said filing for bankruptcy is not the end of the world and can actually bring a sense of relief to debtors.
"Bankruptcy itself is not painful. Although some have to restart from zero, we view our jobs as helping people take their first step in a new life."
Nishida, who said he looks to expand his bankruptcy business nationwide through franchising, said his role was as an economic healer.
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