Bankruptcy Bubble's Size Surprises Banks

By Eric Dash, New York Times News Service

For more than eight years, big banks lobbied aggressively to make it harder for consumers to file for bankruptcy.

Now that the new bankruptcy law has taken effect, was the investment worth it? The early data suggest that sometimes, you have to be careful what you wish for.

Bankruptcy filings were supposed to snowball in the months before the tough new law went into effect on Oct. 17. But the avalanche of petitions, and the lines of debtors streaming out the courthouse doors even caught the credit card issuers who supported the new law by surprise.

In recent days, the nation’s five biggest credit-card-issuing banks have said that the unexpectedly large flood of filings shaved hundreds of million of dollars off their earnings in the third quarter. With tens of thousands of petitions still being processed and Hurricane Katrina’s impact on cardholders still being sorted out, the bankruptcy rush is likely to result in well over a billion dollars worth of losses by the end of the year.

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