Portugal's woes drive personal bankruptcies

By Barry Hatton

Associated Press

Published: Wednesday, March 28 2012 4:10 a.m. MDT

WITH STORY SLUGGED PORTUGAL HARD TIMES - Nuno Pinto poses for a photo in a park near his home in Santa Iria de Azoia, a small town just outside Lisbon, on March 21 2012. Pinto is 40-years old, out of work and out of money, so he is contemplating losing the family home but is not happy with the personal bankruptcy which is engulfing the finances of the Portuguese people. Lenders demanded debt-reducing austerity measures have helped pitch the country into a steep decline, with a second straight year of worsening recession, and record unemployment.

Armando Franca, Associated Press

LISBON, Portugal — Nuno Pinto is 40, out of work and contemplating a step he thinks is the only way out of his family's financial plight: personal bankruptcy.

Pinto, like many Portuguese, is financially stranded. He has no income, and gets by with the help of his elderly parents, but repayments on loans he took out before Portugal was engulfed by a financial crisis keep falling due.

Personal bankruptcies last year outnumbered company bankruptcies, accounting for 55 percent of all insolvencies in Portugal. It's the first time that has happened and is part of a gloomy catalog of record-breaking statistics.

Portugal's vulnerable, debt-riddled economy was crushed last year by Europe's sovereign debt crisis. Portugal had to follow Greece and Ireland and take a €78 billion ($103 billion) bailout to dodge national bankruptcy.

Lenders demanded debt-reducing austerity measures that have helped pitch the country into a steep decline. It is in its second straight year of worsening recession, and unemployment has climbed to a record 14.8 percent. Portugal's continuing troubles could yet provide the spark for another European financial emergency.

"I'm up to my neck in debt," Pinto said during a recent visit for legal advice at the Portuguese Consumer Defense Association in Lisbon.

He's close to defaulting on his mortgage and, along with his partner and 9-year-old daughter, faces imminent eviction.

"I'm here to see if I can get what's my last chance — personal bankruptcy," says Pinto, a burly man with gray hair and beard. Gaining insolvency through the courts would allow him to renegotiate a special repayment plan with his creditors, warding off his most pressing problems.

Stories like Pinto's aren't hard to find these days in Portugal, a country of 10.6 million people enduring its worst hardship in recent memory.

The Portuguese are paying a heavy price for their country's failure to move with the times over the past decade. Portugal's calcified economy has produced almost no meaningful growth since the turn of the century.

Pinto is one of the more than 670,000 Portuguese who last year defaulted on their loans — a 5 percent jump on the previous year. Defaults on consumer credit amounted to €1.53 billion in January, a 14 percent increase since last May's bailout. It's the highest level of unpaid private debt since the Bank of Portugal started keeping detailed records 15 years ago.

Total debt — that taken on by the state, companies, and individuals — stood at 418 percent of annual GDP last year. The country has never been so deep in the red.

Such perilous levels of debt have lumbered banks with piles of bad loans and raised the specter of Portugal needing to ask for more international financial aid that could detonate another bout of eurozone volatility, even though Portugal accounts for less than 2 percent of the 17-nation bloc's GDP.

The Consumer Defense Association, a privately-funded body, says that between 2010 and 2011 the number of requests for help it received jumped 60 percent to more than 23,000 families.

The problem isn't just unemployment. Austerity measures have included public sector pay cuts. The government has pruned welfare benefits and increased sales tax, including a hike in the tax on electricity to 23 percent from 6 percent.

Old certainties and expectations, such as inflation-linked pay increases and automatic promotions, are gone. All these austerity measures have combined to throw housekeeping budgets out of kilter to a point where families' disposable income — what's left for discretionary spending after taxes and bills — has shrunk so much that for an increasing number of Portuguese there's little left for basics like food and clothes.

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