Wed, Aug. 29, 2007

Personal bankruptcy filings surge
By MADLEN READY
The Associated Press

NEW YORK -- More Americans are filing for bankruptcy again after last year's hiatus, and credit-card default rates are spiking.

Although the percentage of payments being written off as uncollectible isn't as high as it was a couple of years ago, the conditions are ripe for it to grow. Bankruptcy filings keep pouring in, home prices continue to fall and energy prices remain high.

According to data from Moody's Investors Service, credit-card companies wrote off 4.58 percent of payments between January and May, up nearly 30 percent from the same period in 2006.

"In 2007, we expected an increase, as bankruptcy filings returned to more normal levels," said Jay Eisbruck, managing director in Moody's asset-backed finance group. He called this year's resurgence in bankruptcy filings the primary reason that credit-card default rates have soared.

In mid-2005, the default rate for credit-card payments was around 6 percent, and in 2004, it was even higher. Then it fell to about 3 percent in late 2005 and early 2006 after changes in U.S. law made it more expensive for individuals to file for bankruptcy and filings dropped.

Now, bankruptcy filings are flooding back in. According to the Administrative Office of the U.S. Courts, filings nationwide jumped 66 percent in the first quarter. That's causing default rates to soar, because getting bankruptcy protection usually means you're released of your credit-card obligations.

Falling home prices are one factor prompting more people to file for bankruptcy. Standard & Poor's reported Tuesday that U.S. home prices fell 3.2 percent in the second quarter, the steepest decline since 1987, when it began its nationwide housing index. When home prices depreciate, it's harder for many homeowners to access cash by refinancing their mortgages. Some homeowners, especially those stuck with high-rate loans, can't make their payments.

But the problem with bankruptcy filings in the U.S. -- and in turn, the nation's credit-card debt -- is bigger than the slumping housing market, experts say.

"Bankruptcy filings have rebounded because consumers continue to feast on a diet of debt," said Greg McBride, senior financial analyst at Bankrate.com.

Rates for credit-card delinquencies, meanwhile, have held up relatively well.

According to the Moody's data, credit-card delinquencies rose just under 4 percent between May 2006 and May 2007. People are usually delinquent before they file for bankruptcy; after they file, they are written off.

The credit-card delinquency rate in the first quarter was still higher than most other types of debt, according to data from the American Bankers Association. But it declined from the fourth quarter of 2006 while several other types of debt -- home-equity loans, property-improvement loans, indirect auto loans and personal loans -- saw delinquencies rise.

http://www.star-telegram.com/business/story/216864.html