Despite Personal bankruptcy filings having climbed to record numbers for the second month in a row with 170,130 filings in April, credit card chargeoffs seem to be holding stable, according to a report from Fitch Ratings. April's numbers represent a 3% increase over March 2005 and are seen as the continued fallout of the April 20, enactment of the Bankruptcy Reform Act.
The new bankruptcy law, which becomes effective Oct. 17, will require a means test for filers, making it more difficult for consumers to discharge their credit card debt. Despite the near-term spike in bankruptcies, the rule is seen as beneficial to credit card ABS in the long term, as more consumers will likely be on the hook to pay off more of their credit card debt.
So far, that spike has not shown up as an increase in prime chargeoffs, which actually declined nine basis points to 5.88% in March. Sub-prime 60-day delinquencies were also down nine basis points in the month at 2.80%. Rich Drason, director with Fitch, said the effect of the increased filings will likely show up in the next month or two as issuers are required to recognize bankruptcy filings charge off borrowers after 90 days. Drason added that Fitch has no forecast for the effect that the filings will have on the monthly chargeoff rate.
Fitch maintains its stable outlook for the prime credit card sector and expects stable performance trends with some seasonal volatility for the near term, according to the report. Drason added that most of the filers in April's latest rush are likely subprime borrowers, with a few prime borrowers mixed in.
April's record numbers push 2005 year-to-date filings to 551,873, a 2.7% increase over the same period last year, but Fitch expects the year-over-year totals to be flat versus 2004.
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