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US personal bankruptcy expected to drop in 2012
By Michael R. Dean and Rob Rowan |
July 30, 2012, Monday
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Print Edition
Print Edition
FITCH believes personal bankruptcy filings are likely to decline by 11 percent for the current year.
The expectation follows data indicating that filings in first half of this year were running well below initial expectations. According to The National Bankruptcy Research Center, US personal bankruptcy filings decreased by 13 percent in the first half of this year.
The drop in bankruptcy filings is having a direct and positive impact on consumer asset-backed securities, particularly in the credit card sector, by holding many risk measures at cyclical lows. We expect performance to hold at or near current levels through the end of the year.
Bankruptcy filings typically comprise approximately 30-40 percent of overall credit card chargeoff results and the improvements are helping offset unemployment pressures for consumers.
We believe the pace of improvement will level off later this year, as banks appear to have begun loosening underwriting standards recently.
Consumer borrowing rose by US$17.1 billion in May from April, according to the US Federal Reserve. That pushed total borrowing to a seasonally adjusted US$2.57 trillion, approaching the high reached in July 2008.
Increases over the previous 18 months had been attributed to auto and student loans, while credit card usage declined or stayed the same.
That abruptly changed in May when credit card debt increased by US$8 billion, its largest one-month jump in nearly five years.
The decline in bankruptcy applications began in 2011, after four years of increases.
In 2010, the National Bankruptcy Research Center reported 1.5 million filings. That was the highest level since 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act reduced the likelihood and amount of discharged debt in personal bankruptcy cases. In 2011, amid signs of slow improvement in the labor and real estate markets, personal filings declined by 11.6 percent to 1,353,186.
The improvements in bankruptcies have come amid a pullback in consumer credit usage and overall reduction in household debt.
Michael R. Dean is a managing director at the Asset Backed Securities division with Fitch. Rob Rowan is a senior director at Fitch Wire. The opinions are their own.
The expectation follows data indicating that filings in first half of this year were running well below initial expectations. According to The National Bankruptcy Research Center, US personal bankruptcy filings decreased by 13 percent in the first half of this year.
The drop in bankruptcy filings is having a direct and positive impact on consumer asset-backed securities, particularly in the credit card sector, by holding many risk measures at cyclical lows. We expect performance to hold at or near current levels through the end of the year.
Bankruptcy filings typically comprise approximately 30-40 percent of overall credit card chargeoff results and the improvements are helping offset unemployment pressures for consumers.
We believe the pace of improvement will level off later this year, as banks appear to have begun loosening underwriting standards recently.
Consumer borrowing rose by US$17.1 billion in May from April, according to the US Federal Reserve. That pushed total borrowing to a seasonally adjusted US$2.57 trillion, approaching the high reached in July 2008.
Increases over the previous 18 months had been attributed to auto and student loans, while credit card usage declined or stayed the same.
That abruptly changed in May when credit card debt increased by US$8 billion, its largest one-month jump in nearly five years.
The decline in bankruptcy applications began in 2011, after four years of increases.
In 2010, the National Bankruptcy Research Center reported 1.5 million filings. That was the highest level since 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act reduced the likelihood and amount of discharged debt in personal bankruptcy cases. In 2011, amid signs of slow improvement in the labor and real estate markets, personal filings declined by 11.6 percent to 1,353,186.
The improvements in bankruptcies have come amid a pullback in consumer credit usage and overall reduction in household debt.
Michael R. Dean is a managing director at the Asset Backed Securities division with Fitch. Rob Rowan is a senior director at Fitch Wire. The opinions are their own.
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