NYT “Not only are filings up, but recent filers have had much more credit card debt, often run up in an attempt to keep current on a mortgage that now exceeds the value of their home, bankruptcy lawyers said in interviews.

A recent study found that the typical family who filed for bankruptcy in 2007 was carrying about 21 percent more in secured debts, like mortgages and car loans, and about 44 percent more in unsecured debts, like credit cards and medical and utility bills, than filers in 2001.”

Triple whammy hits families – their home value plummets as their interest rate resets to a higher rate and their ability to make it through declines as they atteempt to use their credit cards for mortgage and other basic expenses. Then, often, their credit ratings crater and their sources of unsecured credit are pulled or capped, precisely because they are using their cards so much to bridge the unbridgeable gap left by the collapse in their home equity. Add in even a 10% cut back in work hours by an employer, and the family is in bankruptcy court. And despite what the CNBC crew or Senator Shelby believes the vast majority of these families are level-headed, forthright, hardworking Americans, not irresponsible house “flippers” or scofflaws.

“There are a lot of foreclosures that haven’t taken place yet because people still have available credit,” said Jeffrey Tromberg, a bankruptcy lawyer in Fort Lauderdale, Florida. “We don’t see them until they’ve maxed out their credit cards.” And that’s the scary part.

Innovest charts (date unknown): Credit Cards at a Tipping Point

Feb. 2 BEA’s Personal Income and Outlays, December 2008

Personal income decreased $25.3 billion, or 0.2 percent, and disposable personal income (DPI) decreased $25.1 billion, or 0.2 percent, in December, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $102.4 billion, or 1.0 percent. Real disposable income increased 0.3 percent in December, compared with an increase of 0.8; however, in the longer term, that’s a -2.7% decrease in disposable income from May 2008, or $430 billion.

Feb. 2 FRB’s January 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices.


Feb. 6 Federal Reserve’s monthly report on credit consumer credit (G-19)

2-09-09 release of the Fed’s monthly report on credit consumer credit highlighted that drop in card use. According to the G.19 report, revolving credit — a category of loans made up almost entirely of credit card debt — showed a 7.8 percent decline in December. Previously, the Fed had reported that revolving credit plunged in November 2008 at an annualized rate of 3.4 percent. However, that number was revised sharply lower in the current report to 8.5 percent. The revised November decline was the largest ever recorded in terms of dollar amount and was the steepest percentage fall since January 1978. Overall, revolving debt fell to $963.5 billion from a total of $969.9 billion in November.

That decline in credit card balances stems from a general pullback in consumer spending, analysts say. “Over the past three months, nominal consumer spending has been falling at the fastest rate since World War II,” says Sean Maher, an associate economist with Moody’s Economy.com in West Chester, Pa. Maher says that falling gasoline prices have meant less reliance on credit cards at the pump. Based of Moody’s estimates, drivers could save well above $100 billion over the course of 2009 if gas remains at $2 a gallon.

Bloomberg:

“The debt-to-income ratio shows how indebted consumers are relative to income. A rising ratio indicates that consumers are taking on greater debt burdens with respect to income growth. In a growing economy, this may not be dangerous. However, indebtedness could quickly become a problem if income and employment conditions turn around. The yearly change in debt outstanding shows yearly trends in debt growth and tends to be less volatile than the monthly change.:

Feb. 9 Commerce Department’s December 2008 Report on Personal Income and Outlays

“The Commerce Department said spending decreased by 1.0 percent after falling by a revised 0.8 percent in November. That figure was previously reported as a 0.6 percent drop. Incomes fell by 0.2 percent after November’s 0.4 percent decline, previously reported as a 0.2 percent decline.”


Feb. 18 Change Wave Survey of Consumer Spending two things: Lower spending chart, and higher savings trend in place.

For the

Feb. 24 Consumer Confidence Report

Even COSTCO & WalMart Suffer. “sixth consecutive survey since July, Saving More Money (42%; up 1-pt) has risen as a key concern and is now one of the top reasons why consumers are spending less. Reducing Debt (35%; down 1-pt) also remains a top reason. . . ” Paradox of Thrift

But the number one reason is Reduced Income (44%; up 6-pts), which has surged 6-pts since January alone.” How fast the deflation is moving . . . and perhaps verifying the reported move to involuntary part-time work.

“With charge-offs rising so fast and beyond what was expected, the losses those cause will far surpass what companies were hoping to make up with by extra card fees and higher interest rates,” says Innovest’s Nishikawa.

Over the past decade, U.S. households have been loading up on debt, with credit-card balances rising 75% since 1999. Yet families’ real wages have increased only slightly — by just 4% during that same time period, according to Innovest. The savings rate has similarly declined relative to credit-card balances. Meanwhile, home equity, the biggest source of wealth for most families, has been drained by the mortgage crisis. And then, of course, there’s unemployment. Thus, it’s not surprising that credit defaults are up dramatically, at the highest rate in six years.

Increased use of securitization in the credit-card industry has fueled some if its growth. Over the past four years, seven of the biggest card issuers packaged more debt into securities. “The securitization market for credit cards was operating for the first half of 2008 but is now shut down, making it harder to securitize credit-card debt,” says Arthur Wilmarth, finance professor at George Washington University Law School. Banks, forced to keep more debt on their books, are less willing to lend to anyone who doesn’t have a high FICA, or credit quality, score. The result is a vicious cycle of borrowers being hit with higher interest rates, hair-trigger late fees and curtailed credit lines just when they need funds the most. . . credit card asset-backed securities aren’t as far-reaching or as complex as mortgage asset-backed securities, and they don’t have large amounts of credit-default swaps piled on top of them like mortgages do. Agreed, but that’s not the concern I have in this article — my concern here is how much consumer demand will therre be for more credit card buying power?

Lower gas pricess may help, but . . .

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