As participants in the credit card ABS market anxiously watch trust performance in the wake of the recently enacted bankruptcy reform, several credit card issuers have given guidance on where they think charge-offs are headed. For now, the consensus still seems to be that the trusts will experience an increase in chargeoffs through the end of the year, followed by a return to normal levels in 1Q06. Meanwhile, issuers, analysts and rating agencies alike still believe most trusts have adequate excess spread to absorb the spike in chargeoffs.
The Bankruptcy Reform Act, which became effective last month, has made it more difficult for consumers to escape their debts by filing Chapter 7 bankruptcy. The law has caused record bankruptcy filings in advance of the deadline, which are expected to impact chargeoffs in the coming months.