BANKRUPTCY FILINGS SURPRISE EVEN CREDIT CARD BANKS

October 25, 2005

Return To Archives

Bankruptcy filings were supposed to snowball in the months before the tough new law went into effect on Oct. 17, the New York Times reported today. But the avalanche of petitions and the lines of debtors streaming out the courthouse doors caught even the credit card issuers who supported the new law by surprise. In recent days, the nation’s five biggest credit-card-issuing banks have said that the unexpectedly large flood of filings shaved hundreds of million of dollars off their earnings in the third quarter. But with tens of thousands of petitions still being processed and Hurricane Katrina’s impact on cardholders still being sorted out, the bankruptcy rush is likely to result in well over $1 billion worth of losses by the end of the year. Of course, most banks projected a tidal wave of filings in anticipation of the new rules. They weighed the long-term benefits of a bankruptcy overhaul against the short-term costs of the expected surge of bad, uncollectible debts. What they misjudged, however, was the extent. More than 500,000 Americans filed for bankruptcy protection in the 10 days before the law took effect on Oct. 17, according to estimates by Lundquist Consulting. And though the number is expected to soon slow to a trickle, some bankruptcy courts were so inundated with filers that thousands more could be counted this week.