Personal Bankruptcy Filings Decline 11.6% in 2011

"Fitch Ratings says personal bankruptcy filings declined for the first time in four years in 2011, as economic conditions improved marginally during most of the year and consumers reigned in borrowing and paid down existing debt. According to National Bankruptcy Research Center figures, U.S. personal bankruptcy filings declined 11.6% from 2010. The results bettered Fitch's more moderate 5% decline forecast for the year. Actual filings fell 176,892 from 1,530,078 in 2010 to 1,353,186 in 2011.

The results helped drive the rapidly improving collateral performance in consumer Asset-Backed Securities (ABS) sectors throughout 2011. Notably credit card chargeoffs, which are directly affected by bankruptcy filings, fell significantly throughout the year, declining more than 37% from year-end 2010 to year-end 2011 (see chart above). Bankruptcy filings typically comprise 20%-30% of credit card chargeoffs while contractual defaults make up the rest.  Lower consumer bankruptcies have a less profound, but still important, effect on auto ABS, given the utility and importance of the car to the borrower. Nonetheless, lower filings do have a positive effect on default frequencies, all else being equal."

MP: The chart above was featured on this recent CD post, and shows that for consumer credit cards, the delinquency rate in Q3 2011 fell for the 9th consecutive quarter to 3.47%, which was the lowest level since a 3.46% reading in the first quarter of 1995, more than 16 years ago (see blue line in chart).  This downward trend in credit card delinquencies to a 16-year low helps explain the significant decline in personal bankruptcy filings last year. 

HT: Robert Kuehl