In mid-August The Washington Post ran an article in its business section warning of the perils of consumer debt returning to record high levels. “Haven’t we learned?” it moans. The better question is, “So what?” It appears the author has not learned that population growth, higher incomes, different debt compositions, and low interest rates should tell us that 2017 is not 2007. Thus, don’t expect a large swing in New York bankruptcy filings—but that doesn’t mean we shouldn’t worry about a smaller swing.
Sharper researchers have analyzed the numbers and can tell us a few things about where consumer debt is heading. I’m referring to the Federal Reserve Bank of New York. According to the central-bank branch, as of mid-2017, Americans owed $780 billion in credit-card debt, well below the record $870 billion at the end of 2008. Here are some of its other findings.
One, although credit-card originations are up on net, they are mostly going to prime borrowers (people with credit scores above 660). In general it appears that as many subprime borrowers close their credit accounts as open them. This suggests that any rise in aggregate credit-card debt will probably be repaid.
Two, lenders are increasing consumers’ borrowing limits, but nearly all the beneficiaries are prime borrowers. Overall, prime borrowers are the ones receiving credit-limit extensions, which help insulate banks in case less creditworthy borrowers do borrow more.
Three, the one finding that did raise the New York Fed’s concerns is delinquency, specifically what it calls “delinquency transitions.” The researchers define this as the balances of accounts that enter serious delinquency (90 days or more past due) as a fraction of the previous quarter’s balance that was less than 90-days past due. Here, the researchers detected an uptick over the last few quarters among subprime and barely prime consumers. Delinquency transitions are now above 20 percent. In 2009, they exceeded 40 percent.
Delinquencies for all types of debt are still low, even for mortgage debt. The one exception is student loans, which comes with a different set of problems.
The New York Fed’s research is here.
The job market is still weak, but it has improved. Consequently, it’s unsurprising that more people are borrowing more money, contrary to The Washington Post. Even so, if you are struggling with credit-card debt, then talking to an experienced New York bankruptcy lawyer can help you assess your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.