{
  "id": "98-277",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "98-277",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 105094,
      "date": "1998-03-19",
      "retrieved": "2016-05-24T20:55:39.494941",
      "title": "Bankruptcy and Credit Card Debt: Is There A Causal Relationship?",
      "summary": "Personal bankruptcy filings now exceed one million per year. Why should bankruptcies have\nrisen\nto record levels during a period when the economy has enjoyed two of the longest peacetime\nexpansions in history, with unemployment, inflation, and interest rates all falling? Something must\nhave changed in household finance; credit cards are among the \"usual suspects.\"\n  Credit cards figure prominently in the debate over bankruptcy reform. Credit card lenders argue\nthat bankruptcy makes it is too easy for debtors to avoid paying their debts, creating an incentive for\nreckless or fraudulent borrowing and exacerbating recent losses to credit card loan portfolios. They\nsupport legislation ( H.R. 2500  and  S. 1301 ) that would require some\ndebtors to repay a portion of what they owe. Opponents of such proposals, including some consumer\ngroups, argue that the high-power marketing campaigns of credit card issuers amount to an\nirresponsible extension of credit to households with low incomes and little financial sophistication,\nmany of whom are then thrust into bankruptcy by any unforseen economic trouble.\n  Does bankruptcy cause excessive losses to lenders, or do lending practices cause bankruptcies? \nCredit card debt has grown rapidly since the early 1980s, but it is still a small share (less than 11%)\nof all household debt, which is dominated by mortgage and home equity debt. However, the interest\ncharged on credit cards is high, and, moreover, it is \"sticky,\" that is, credit card lenders have not cut\ntheir rates when the general level of interest rates falls. Reasons for this stickiness may lie in\nstructural and permanent features of the market, or in unique historical circumstances in the credit\ncard industry's development; in any case, a dollar of credit card debt is more expensive than a dollar\nof other debt.\n  Since 1989, the aggregate debt burden (debt payments as a percentage of income) of American\nfamilies has been flat. However, the debt burden has fallen for upper income families and risen for\nlow-income families. Financial distress (when more than 40% of income goes to debt service) has\nalso increased among lower-income families. Have credit cards played a role in these trends? The\ndebt burden arising specifically from credit cards appears to be minor: 0.5% of income in 1995, but\nsomewhat higher and rising for low-income households. Could credit card borrowing by low-income\nfamilies, though small in the aggregate, be a straw that broke the camel's back and a source of\nincreased bankruptcy filings? \n  The percentage of families using credit cards to borrow has increased since 1983, with lower-\n income families leading the rise. However, the median amount borrowed by low-income families\n has\nnot risen significantly: the expansion of credit card loan volume is primarily attributable to upper-\nincome borrowers increasing their balances. And for these borrowers, the overall debt burden has\nbeen falling.\n  The available aggregate data do not show that credit card debt has caused a major shift in U.S.\nhousehold financial conditions. Many bankruptcy filers no doubt have unusually high amounts of\ncredit card debt, but statistical information about their overall financial circumstances does not exist.",
      "type": "CRS Report",
      "typeId": "REPORTS",
      "active": false,
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          "url": "http://www.crs.gov/Reports/pdf/98-277",
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      "topics": []
    }
  ],
  "topics": [
    "Economic Policy"
  ]
}