Credit Cards Blamed for Bankruptcies

Article excerpt

Susan Carpenter's $15,000 in credit card debt began with $40 dinners. It mounted with vacations, and while Carpenter paid the minimum on her bills, she used cash advances from American Express to pay her rent.

Now she's considering bankruptcy -- if only she had the money to file the papers.

"I think about bankruptcy every two days," she said. "I could live on the money I make ... but am I going to be able to whittle away at the (bills)?" And so it goes for the record number of Americans who are filing to have their debts canceled. Bankruptcy could free them of their unsecured debt except for back taxes and student loans, but it would make it difficult and expensive for them to borrow money for up to a decade. Unemployment is the lowest it's been in seven years; inflation is low; hourly wages are rising, and the economy is in the sixth year of recovery since the 1990-91 recession. But Americans are awash in bills -- taking on credit card debt faster than their wages are rising. They owe more money on credit cards than ever before, and many are paying late. More than 1 million Americans filed for bankruptcy for the year ended June 30 -- up 27 percent from last year and far surpassing figures from the 1990-91 recession, according to the U.S. Bankruptcy Court. A December study by Visa USA Inc. discovered more people cite imprudent spending as the single largest cause of bankruptcy, instead of health or job problems and family emergencies, which once were the top culprits. Despite the risks, banks offer twice as much plastic credit as was available four years ago, according to the Federal Deposit Insurance Corp. They're also writing off bad credit card loans at the highest level since 1992. Overspenders say some credit card companies are so eager for clients they send pre-approved applications to people who may not know how to manage the cash -- or the payments. Raymond Gomes, a 39-year-old Skokie, Ill., man who filed for bankruptcy in July, said he drifted into debt, always intended to pay his $26,000 credit card bills and was current on payments until he went bankrupt. He said he feels bad about filing but that it was his only option. "Even if you pay a little more than the minimum, the balance doesn't go down," he said. James Chessen, chief economist at the American Bankers Association, said it would be unfair and bad business to lend only to the few people with infinitesimal chances of defaulting. "If we don't take that risk and look for diamonds in the rough, we're not doing our jobs," he said. …


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