THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Sunday, February 23, 1997 TAG: 9702220556
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: Staff report
LENGTH: 52 lines
A blizzard of personal bankruptcies during the past two years is causing heartburn at the nation's banks, especially at those with sizable card portfolios. After stabilizing in the early 1990s, the volume of personal bankruptcies soared last year to a new record.
The pace of filings so far this year suggests that 1997 will be another record year.
Most personal bankruptcies involve Chapter 7, which allows individuals to eliminate most of their debts, including those on credit cards. Rarely are there sufficient assets to distribute to banks and other creditors.
A smaller percentage of people filing for bankruptcy use Chapter 13, a version that lets them keep major assets and repay part of what they owe over three to five years.
The amount of credit-card debt that banks are writing off as uncollectable began climbing sharply two years ago. During the first half of 1996, the volume of uncollectable card debt jumped to $8.4 billion, surpassing the $8.2 billion total for all of 1994, according to the American Bankers Association.
One major concern is that personal bankruptcies have been rising in the midst of a strong economy. Some card-issuers wonder how much worse the situation will get when the economy loses steam and some consumers have fewer resources to repay what they owe.
Another concern is the number of higher-income individuals resorting to bankruptcy. Many of these had clean records for paying bills until they suddenly filed for bankruptcy, said Nancy Judy, a spokeswoman for the American Bankers Association. In the past, someone headed for bankruptcy court typically had a history of delinquent payments.
Credit-card lending has been enormously profitable for banks. For some, it's become an important source of earnings because specialized lenders and non-bank financial companies are competing more aggressively for home loans, auto loans and commercial loans.
As the battle for card accounts has intensified, many banks have offered larger lines of credit and teaser interest rates to transfer balances from another card account. In addition, some banks have reduced their credit standards to attract new card-holders. ILLUSTRATION: Graphics\VP
More Bad Debt Nationwide
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Record Bankruptcies
Personal bankruptcy filings nationwide hit a record in 1996 and
continue to climb this year.
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KEYWORDS: CREDIT CARD DEBT BANKRUPTCY