How Much Credit Card Debt Do Bankrupt Consumers Have?

We here at Credit Slips frequently get asked the question, Just how much credit card debt do people filing for bankruptcy actually have? So as a public service of sorts, I’m going to begin answering it. I say “begin” answering it because, even though our data comes directly from court records – a reliable source if there ever was one – it is not always possible to tell whether a given debt was acquired via credit card. For example, a debt listed as being owed to J.P. Morgan may be from a credit card or may be from a signature loan the debtor got at the bank. On the other hand, we do think our numbers are as accurate as they can be. We coded 10 percent of our cases twice in order to check for discrepancies and found them only 0.8% of the time.

With those caveats in mind, according to data from the 2007 Consumer Bankruptcy Project, the mean credit card debt for bankruptcy filers is $23,543, with a median of $13,279. Among chapter 7 filers, the mean credit card debt was $26,267 and the median $17,032. For chapter 13, those numbers were $18,076 and $6,079, respectively. This actually seems fairly modest when you consider that, by the end of 2008, the average accredit-card balance was $8,329, more than a quarter the average bankruptcy total of $23,543. In addition, 7.9% of our chapter 7 filers and 18.2% of those in chapter 13 reported no credit card debt at all. In the general population, 53.9% of Americans held no credit card debt – a much larger difference.  Again, it is important to repeat the caveat that our count of credit card debts may have missed some, although the 53.9% figure comes from the Fed’s Survey of Consumer Finances, which may have miss some credit card debt as well.

These data are from the 2007 Consumer Bankruptcy Project, the first national random sample of bankruptcy filings by consumers. For details on how the database was constructed, please click here and go to Appendix I of the article.

Comments

[Patches]

More or less sounds about right on the amounts.

[Gordon's Credit Report]

When I went bankrupt, my credit card debt was $25,000. So, now I understand it was fair enough to go banckrupt at that stage.

[W]

How much medical debt did the people filing for bankruptcy have?

[whowhatwherewherewhy]

I am a consumer bankruptcy attorney in the Northern District of Illinois. Here's my take:

1) Credit card debt is overwhelming the main cause of bankruptcy, not medical bills. In a sample of 100 cases, I would estimate that medical bills were the primary cause in no more than 3-5 cases.

2) Beside credit card debt, home mortgages and car loans the second and third most causes.

3) It is not uncommon to see Chap 7 debtors with car payments upwards of $500 per month and/or mortgages of $1,800 or more per month.

4) You may have missed some credit card debt. A lot of banks sell their charged-off accounts to debt collectors (LVNV, Asset Acceptance, etc) and it is often impossible to determine from the credit report which credit card the debt relates to. IMHO the amount of credit card debt is probably higher.

5) My opinion is that debtors have lived well beyond their means for years and it's finally catching up with them. They've financed nice cars, expensive homes, dinners out, vacations and now the minimum payments are too high. I have friends who make $45,000 a year but have $30,000 in credit card debt!

Consumer spending will be hurting for years to come. The consumer is just plain tapped out.

[In the trenches of SWFL]

These numbers seems low. I see many retirees with $100K+ of credit card debt. The average couple in my area that files has somewhere between $45K and $80K. However, there are many people with three mortgages that they can't pay and $3K of credit card debt. These BKs could skew the overall figures. Perhaps my area of the country is ground zero for the debt apocalypse. That could have something to do with it.

[schwartzer]

mr. illinois bankruptcy attorney could you possibly do something noble and work on ending the fed as in end the fed dot us. should we get rid of this parasite that has been destroying this country since 1913 bankruptsies would become obsolete

[Raymond Bell]

May I offer another perspective. While I have seen similar large amounts of credit card debt in bankruptcy filings consumers, outside of secured debt such as auto and mortgage loans, use credit card access for virtually most of their purchases and for services rendered, even paying their taxes. Thus, while common to see large amounts of credit card debt I wonder if a study would serve any purpose to analyze what the consumer used the credit card for?

[lmclark]

One commentator said " I have friends who make $45,000 a year but have $30,000 in credit card debt!" He sounded shocked.

Well, let's do some math. $45,000 a year is gross pay (assume for two). Take home (assume for now no "bennies") should be somewhere around $35,000 (assume federal tax, FICA, and Medicare, but no state income tax). Per month, rounded, that's about $3,000. Assume a house payment of $1,200 (probably low, but let's play with it). Assume two cars (assume we're in the midwest where everyone has to have a car), at $400 each. We are already at $2,000. Add in utilities, food, car insurance, house insurance, health insurance (is that a luxury?) -- all for $1,000 a month? I doubt it.

Oh, I could tweak this a bit here or there -- drop the mortgage to rent ($800?), drop the car payments to $250 (it's a push, but ...). But all I add is $700 a month -- and that ain't much, considering the list of what I need. Oops, I forgot gas, home repair, oil changes, clothes, toiletries, phone (of some sort). And I won't even talk about cable or satellite TV, or church contributions, or a new washer.

There's no room for fancy cars, expensive houses, vacations, or any thing else, is there?

I'm drawing off of years of experience looking at Schedule J, so I don't think I'm far off. Now just tell this hypothetical person not to "run up a bunch of credit card debt" as it is so often put. Go ahead. Do it, if it will make you feel better.

But I challenge most of us to live that way, without resorting to credit card debt.

[Raymond Bell]

Could not and will not disagree with lmclarke. Indeed consumers need to look to bankruptcy and that has not changed in my 40 plus years. This country, right or wrong and even in between transformed into a credit society. One or many can blame the credit card industry and may be partially correct. I too have gone overboard when I should not have.I take that lmclarke's message is clear: live within your means. While this appears to me as an original thought may be simply subconscious memories.

[May]

I had $24 grand in credit card debt when I filed BK.
Every dollar of that debt was fees and interest.
I had been paying for over a decade and was snowed in with high interest, and "penalty" fees.
There was no way I could get out from under that mountain of debt.
The credit card co's didn't lose any money on me.
I'm sure they would have loved to continue to hold me hostage.
I am free at last ! No more credit cards for me! Ever!
I have learned to live without them!

[Molly]

I somewhat agree with SWFL. Those numbers feel low?? I'm also down with living within your means!