Credit Card Debt Low, Affects Bankruptcy Filings

Credit card debt is one of the more common reasons that Americans file for personal bankruptcy, and it is at its “lowest level since 2006,” according to a recent article from ACA International. Consumer bankruptcy filings have been on the decline over the last four years, and new research from the American Bankruptcy Institute suggests that the reason may be less accumulation of credit card debt.
Role of Bankruptcy Reform and Personal Bankruptcy Filings
According to the American Bankruptcy Institute’s Executive Director Sam Gerdano, the recent decline in personal bankruptcy filings likely is tied to the “changing nature of consumer debt,” and that decline “may slow down in the near future.” In thinking about how personal bankruptcy filings have been on the decline—and considering the reasons—it is important to look at the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).
As Gerdan and Consultant Ed Flynn point out, “BAPCPA, which took effect in October 2005, was responsible for a 36 percent increase in filings in 2005, followed by a 70 percent decline in 2006.” And the law has had a lasting impact. It was intended to result in fewer Chapter 7 filings and more Chapter 13 filings—shifting consumers from wiping out debts to restructuring them—but it tended to think about the largest amount of consumer debt stemming from credit cards. Now, that is not exactly the case.
In short, the nature of consumer debt has changed over the last decade. The majority of debt we see now is attributed to student loan debt (which is rarely dischargeable through bankruptcy), medical debt, and auto loans. While it is a good sign that credit card debt is lower than it used to be, many consumer protection advocates are concerned about the extremely high student loan debt burden on the country.
Research Findings Show Shifting Consumer Debt Trends
We’ve been talking a lot about the ways in which the BAPCPA has had an impact on consumer bankruptcy filings in conjunction with the types of debt that tend to result in a Chapter 7 filing. What else did the research from the American Bankruptcy Institute uncover? Here are some key findings from the recent report:
  • Delinquent credit card debt isn’t the problem that it used to be. It is at about “one-half of the levels in 2009 and 2010,” but student loan debt has “nearly doubled” in that same time.
  • The total delinquent auto loan and credit card debt, combined with student loan debt, actually has remained “relatively stable for the last five years, at about $200 million.” In other words, while student loan debt has increased, other forms of consumer debt have decreased.
  • Consumer spending has been on the rise over the last five years, and in general, consumer spending is a good thing because it helps to drive the economy. However, too much consumer spending could lead to an increase in credit card debt again at a point in the future.
Filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy can be a complicated task, and it is important to discuss your options with an experienced Oak Park bankruptcy attorney. While consumer bankruptcy filings are on the decline, an overwhelming debt load may make bankruptcy one of your better options. Don’t hesitate to contact us to discuss your situation.
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