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71 Am. Bankr. L.J. 249 (1997)
Credit Card Defaults, Credit Card Profits, and Bankruptcy

handle is hein.journals/ambank71 and id is 273 raw text is: Credit Card Defaults, Credit Card Profits, and Bankruptcy by Lawrence M. Ausubel* Credit card defaults have become an increasingly conspicuous feature on the bankruptcy landscape. In 1996, bank credit card delinquencies exceeded 3.5 percent-the highest delinquency rate since 1973, when statistics were first collected.1 Bank credit card chargeoffs also veered upward to 4.5 percent per year, exceeding all but the levels recorded during the years 1991-1992.2 At the same time, personal bankruptcy filings reached a record high 290,111 in the quarter ending September 30, 1996-up thirty-one percent from the cor- responding period one year earlier-and surpassed one million for the first year ever in 1996.3 Both credit card defaults and bankruptcies soared amid a gener- ally healthy economy with relatively low unemployment4 and reasonable growth in gross domestic product.5 Wall Street analysts warned that the consumer balance sheet was heading toward a precipice which endangered the health of *Professor of Economics, University of Maryland at College Park. Copyright 1997. All rights re- served. This Article is based on a paper presented by the author at the Seventieth Annual Meeting of the National Conference of Bankruptcy Judges, San Diego, California, October 16-19, 1996. 1 am grateful to Neal Batson, David Erne, Professor Jeffrey Morris, Kim Kowalewski, Elizabeth Laderman, and Donald Morgan for helpful comments, discussions and ideas. I also wish to thank the Administrative Office of the United States Courts, the American Bankers Association, and the Federal Deposit Insurance Corporation for data used in this Article. Further, I thank Yi-Feng Chia for excellent research assistance. 'See infra Figures 1, 2, 4 and 6, which plot the seasonally-adjusted proportion of credit card accounts with positive balances that were thirty days or more past due. The monthly data series was provided by the American Bankers Association's Consumer Credit Delinquency Bulletin, seasonally adjusted by the author, and averaged over the three months of each quarter. 2See infra Figures 1 and 3, which plot the seasonally-adjusted, annualized proportion of credit card outstanding balances that were written off by bank credit card issuers. The 1971-1990 chargeoff rate is taken from LAWrNCE M. AUSUBEL, THE CREDIT CARxD MARKET, REViSITED, tbl.1 (University of Maryland Department of Economics Working Paper, July 1995). The 1991-1996 chargeoff rate was provided to the author by the Federal Deposit Insurance Corporation, and was based on the Federal Financial Institutions Examination Council's quarterly Consolidated Reports of Condition and Income. The combined series was then seasonally adjusted by the author. 'See Admin. Office of the U.S. Courts, Bankruptcy Filings Continue Upward Climb (Dec. 9, 1996) <http://www.uscourts.gov/Press_Releases/bk396in.htm>. See also <ftp://bankrupt.com/ BankruptcyStatistics>. 4The United States unemployment rate was 5.4 percent in 1996, as compared to an average of 6.5 percent over the previous four years and an average of 6.25 percent over the previous ten years. See generally 72 FED. RESERVE BULL. (1986) to 82 FED. RESERVE BULL. (1996). 'The growth rate in United States gross domestic product (in chained 1992 dollars) was 3.1 percent in 1996, as compared to an average of 2.7 percent over the previous four years and an average of 2.3 percent over the previous ten years. See id.

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