Net chargeoffs in the credit-card trust of Capital One Financial increased in September, in what some are calling the first signs of fallout from the spike in bankruptcy filings wrought by the Bankruptcy Reform Act, which was officially enacted this week. Chargeoffs increased 145 basis points to 4.81% in September from 3.41% in August, according to a report from Barclays Capital.

"The recent surge in bankruptcy filings has likely filtered through into trust performance," wrote Barclays Associate Director and consumer ABS strategist Juliet Jones. Barclays reported 102,863 debtors rushed to file bankruptcy last week "in an apparent attempt to beat the Oct. 17 enactment date for the new bankruptcy law." Total year to date filings are now at 1.46 million filings, 19.4% ahead of last year's comparable period.

Bankruptcy filings are expected to return to normal levels now that the law is in effect, and chargeoffs will likely return to normal levels as well. "Chargeoffs should improve again after the more-stringent bankruptcy reform law takes affect, albeit with a lagged result," wrote Jones in a separate report. The Metris Companies reported a decrease in chargeoffs to 12.9% in September from 13.6% in August, as nonprime issuers are less vulnerable to bankruptcy-related charge offs than prime issuers.

Though chargeoffs have been widely expected to increase as a result of the spike in bankruptcy filings, that spike is not expected to adversely affect credit card ABS performance, as most trusts have adequate excess spread to protect them from the resultant increase in chargeoffs (see ASR, 10/10/05).

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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