Excessive Credit-card debt is very common in New York bankruptcy. In fact, in 2016 in the Eastern District of New York, which includes all Brooklyn bankruptcy cases, the average debtor owed tens of thousands of dollars in unsecured debts. (Information from “Who Are Chapter 7 Bankruptcy Debtors?“) The question is, what are the main reasons people accumulate credit-card debt? The answer, contrary to what many debtors and creditors probably believe, is not wasteful spending on luxury items.
Rather, the answer for 42 percent of credit-card debtors is “making ends meet each month,” according to a study produced by CompareCards.com. The runner-up was “car repairs” at 29 percent, and then “medical bills” at 27 percent. However, tied for fourth place were “eating out” and “clothes shopping” at 22 percent.
Although these answers could easily include debtors who pay down their credit-card bills each month, the researchers deliberately avoided them. Instead, CompareCards.com’s methodology consisted of surveying 1,000 Americans who owed money on their credit cards that they couldn’t pay in the last month, which was around September 2017. As a result, these debtors are much more likely to resemble people who tend to file bankruptcy. Nevertheless, the average balance among these debtors was a lot less than Brooklyn bankruptcy debtors: about $6,000. Although this balance appears manageable, the interest burden probably magnifies its cost.
The study focused on a few other topics, namely the stress credit-card debt causes and the reasons people own credit cards. Unsurprisingly, people who can’t pay their credit cards each monthly experience some (51 percent) or significant stress (25 percent) related to their credit cards. Younger Americans (under 35) are more stressed about their credit-card debt than those who are older.
The most common reason people named for holding credit cards was “building their credit scores,” which seems odd because it’s not so important. The next most-cited reason was “credit in case of emergencies.” Reason number three was “convenience.”
This study strikes me because I’ve written on similar ones before that came to different conclusions. In particular, one published by the think tank Demos in 2014 found that credit-card debt was driven by health-care costs and unemployment. By contrast only 14 percent of participants in the CompareCards.com survey named “job loss” as a reason for their debts. I also wrote about a study by the Federal Reserve Bank of Boston in 2017 that showed that people stay away from credit cards when they’re unemployed.
It’s unclear why the CompareCards.com study found such different results than the Demos one did. It may be that they focused on different populations. It’s important to track because there are so many studies on consumer debts out there that comparing them can highlight consistencies and discrepancies.
Information on the CompareCards.com survey is here.
Regardless of why you may have significant credit-card debts, if they’re causing serious financial problems, then talking to an experienced New York bankruptcy lawyer can help you strategize 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.
