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.
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