(FORTUNE Magazine) – Believe it or not, over the past decade when the economy was growing and unemployment was relatively low, Americans declared bankruptcy at a rate four times greater than during the Depression. Personal bankruptcies nearly tripled from 241,397 in 1980 to 660,796 last year. The villain was ballooning consumer debt. Banks made credit so readily available that the average household's ratio of total borrowings to yearly income rose from 78% to 94% in the 1980s. Meanwhile, the Bankruptcy Reform Act of 1978 made throwing up their hands a lot more attractive to those who were in over their heads. The law, which superseded less lenient state laws, allows a bankrupt couple to keep $15,000 of home equity, one motor vehicle, and $1,500 worth of professional tools. By the time such well-known figures as John Connally and the Hunt brothers went bust, bankruptcy was on its way to acquiring a little respectability among debtors. And just a bit of anguish may be a small price to pay for a fresh start and an end to harassing telephone calls and threatening letters from angry creditors. About 70% of all who file choose a straight bankruptcy, known as Chapter 7, where the borrower's assets are liquidated to pay off his obligations. All outstanding debts except alimony, child support, and some federal and state taxes are wiped off the slate. A Chapter 13 filing is more like a corporate reorganization: The debtor works out a plan to repay all or part of his loans over three to five years. The choice of Chapter 7 or Chapter 13 is up to the bankrupt, and creditors rarely contest it. A bankruptcy filing stays on the debtor's credit report for ten years after a Chapter 7 procedure and seven years after a Chapter 13. This is why in theory, anyway, the bankrupt will find it very difficult to buy a car, secure a mortgage, or get a new credit card.

But the reality is something else. Car dealers, banks, and credit unions have become more willing to take a risk on people who have gone through bankruptcy. For example, some banks in Austin, Texas, will now make car loans to former bankrupts who can afford a large down payment -- anywhere from 30% to 70% of the auto's cost, depending on the customer's financial situation and the reason for the failure. According to a study by Purdue University's Credit Research Center, 52% of the individuals who filed for Chapter 7 bankruptcy between 1978 and 1988 were able to get a new credit line within five years of the filing. In addition, 55% of the debtors were wise enough to hang on to at least one of their credit cards. They paid off the balance right before filing for Chapter 7 and the issuer never learned of the bankruptcy. Needless to say, this shady practice distresses the bank card industry, which lost $2.25 billion last year because of personal bankruptcies. To slow the trend of bankruptcy's growing acceptability among Americans, Visa U.S.A. is trying to educate its customers about alternatives, such as credit counseling services. Says Kenneth Crone, a Visa vice president: ''We're trying to make it clear that bankruptcy should be used only as a last resort.''

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART CAPTION: THE ECHO BOOM IN PERSONAL BANKRUPTCIES Big corporations aren't the only ones going belly up. Personal bankruptcy filings rose precipitously through the prosperous years of the late Eighties.