Increased Bankruptcy Filings Lead to Greater Credit Card Chargeoffs

With

a recently-passed bankruptcy law making it more difficult to

declare bankruptcy, people in financial distress are rushing

to file before the law takes effect. As a result, credit card

chargeoffs--unpaid credit card balances--are expected to climb

substantially.

According

to Fitch Ratings, a business credit rating firm, the Bankruptcy

Abuse Prevention and Consumer Protection Act of 2005 should

lead to 6% more bankruptcy filings in 2005 over 2004. Because

bankruptcies shield those who file from their creditors' demands

for payments, increased bankruptcies mean more credit card balances

go permanently unpaid.

Hurricane

Katrina has added a new twist. Some bankruptcy filers affected

by Hurricane Katrina may not have the chance to beat the deadline.

Further, more consumers in need of bankruptcy protection may

have been created by Katrina and the hurricane's aftermath.

So far there has been no talk of postponing the implementation

of the new law.

Published 09/13/05 (Modified 05/07/12)