Experts across the ABS market agree the latest bankruptcy reform proposal from Capitol Hill will likely cause a rush of bankruptcy filings before the rule actually goes into effect. However, if the credit-card sector can ease through that period without a hitch, the same law should work to decrease charge-offs and help collateral performance by making it harder for potential filers to discharge credit card debt.
The U.S. House of Representatives Judiciary Committee approved the bill last week, after the Senate approved it earlier in the month. The bill now waits on approval by the entire House and the President, both of which are all but certain. The rule, as currently drafted, would require a means test for anyone attempting to file Chapter 7 bankruptcy. If a filer fails the means test, the bankruptcy will be pushed into Chapter 13. Chapter 13 is more beneficial to creditors, while Chapter 7 bankruptcy allows a debtor to discharge all debt.