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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