While the consumer credit industry is pushing hard this week to get Congress to push out bankruptcy reform legislation before the summer break, VISA released stats Monday projecting the number of personal bankruptcies will exceed 2.2 million by the year 2001. The projection represents a 75% rise over 1997 figures. Ironically the growth rate in personal bankruptcy filings on a year-over-year basis has actually slowed during the first six months of 1998. Nevertheless VISA says total personal bankruptcy filings for the entire year will reach a new record of 1.35 million. VISA also insists that without bankruptcy reform, losses to the U.S. economy will exceed $220 billion between 1997 and 2001.
The number of personal bankruptcies is projected to skyrocket to more than 2.2 million by the year 2001, an increase of nearly 75 percent over 1997 figures, according to data released Monday by Visa U.S.A. Although the growth rate in personal bankruptcy filings on a year-over-year basis has slowed during the first six months of 1998, Visa is projecting that total personal bankruptcy filings for the entire year will reach a new record of 1.35 million. This represents the sixth year in a row that personal bankruptcy filings have reached record numbers.
“These projections are disturbing news for the nation’s economy as well as for consumers,” said Kenneth R. Crone, Senior Vice President of Visa U.S.A. “The billions of dollars lost due to personal bankruptcies are passed on to all consumers in the form of higher prices for goods and services and higher interest rates.”
According to a study released in March of this year by the WEFA Group, the record number of 1.3 million personal bankruptcy filings in 1997 resulted in losses to the economy of more than $44 billion, or $400 for every American family. Using Visa’s forecast for bankruptcy filings through the year 2001, the cumulative financial cost to the U.S. economy would rise to over $220 billion.
“While the bankruptcy system should be there for people who truly need relief, the current system allows a significant number of high income individuals to walk away from debts they have an ability to repay,” Crone continued. “In 1997, more than 110,000 bankruptcy filers had the ability to repay an average of 64 percent of outstanding unsecured debts, which are ultimately passed on to responsible, bill-paying consumers.”
In June of this year, the U.S. House of Representatives, by an overwhelming bipartisan vote, passed needs-based bankruptcy reform legislation that will return personal responsibility and fairness to the bankruptcy system. The full Senate is expected to consider bankruptcy reform legislation before the end of July. The House and Senate bills would also enhance consumer education and disclosure regarding options available to consumers other than bankruptcy.
“The consumer education and disclosure provisions of the bankruptcy reform legislation are very important,” Crone said. “Nearly half of the individuals who filed for personal bankruptcy in 1997 were not aware of alternatives other than bankruptcy – – options that are much more preferable than filing for personal bankruptcy.” Visa is an active supporter of the National Foundation for Consumer Credit which works with consumers who are experiencing financial difficulties.
Visa maintains the most extensive daily tracking system of personal bankruptcies filed in federal courts throughout the United States and provides information to its Member financial institutions on a weekly basis for the purpose of risk management. Visa estimated that personal bankruptcies would rise 18.6 percent in 1997 over the previous year. That projection, released one year ago, was within 1 percent of the actual growth rate.
As the world’s best way to pay, Visa is the preferred payment brand and the largest consumer payment system worldwide with more volume than all other major payment cards combined. Visa plays a pivotal role in advancing new payment products and technologies to benefit its 21,000 member financial institutions, their cardholders and the global economy. As the leader in emerging technologies, Visa has more than 70 smart card programs in 31 countries and on the Internet, with 22 million Visa chip cards, including 8 million Visa Cash cards. Visa is pioneering SET Secure Electronic Transaction programs to enable and advance Internet commerce. Visa’s 642 million cards, generating more than US$1 trillion in annual volume, are accepted at over 15 million worldwide locations, including more than 400,000 ATMs in the Visa Global ATM Network. Visa’s Internet address is http://www.visa.com.