Even in these tough economic times, Americans on average carry less than $6,000 in credit card debt. Then there are people like the 60-year-old Hillsborough County woman.
On a Social Security income of $660 a month, she ran up $103,000 on her American Express cards. Hit with an $80,639 judgment from the company in January, she took a common way out — she declared bankruptcy.
Filings in the greater Tampa Bay region are soaring, fueled by plunging home values and mounting debt. In February there were 1,986 new bankruptcies, a 46 percent jump from the same time last year.
Along with job loss and hefty medical bills, credit card debt has historically been one of the main reasons Americans head to bankruptcy court. In most cases, a judge will "discharge'' the debt, meaning the debtor is relieved of the obligation to pay for those Nintendo Wiis and J. Crew dresses.
Why card users get to the point of bankruptcy is a matter of dispute.
One school has it that "credit card companies are just as guilty as drug pushers vis a vis drug abusers,'' says Tampa bankruptcy Judge Catherine Peek McEwen.
"The other camp is that there should be personal responsibility. When did that go out the window?''
Americans currently owe $971 billion on their credit cards, reflecting a buying frenzy that banks and card companies once stoked with low introductory rates and blatant pitches to status ("With a platinum credit card, you'll enjoy all the benefits to distinction!'').
As more consumers lose their jobs, the default rate on credit cards has jumped to the highest level in 20 years and led to tough measures by card issuers to reduce the risk of losses.
More than 40 percent of U.S. banks have reduced credit limits. Discover Card closed 3 million inactive accounts in December and plans to cull 2 million more. American Express is offering $300 to certain cardholders who pay off their balances and close their accounts.
The rate of credit card delinquencies — payments at least 90 days late — is highest in Nevada, followed by Florida and Arizona, according to the TransUnion credit reporting company. All three states have been hard hit by the housing meltdown, which is blamed in large part for the surge in bankruptcies nationwide.
Whether credit card debt will lead to even more bankruptcies is hard to judge, based on recent filings in the Tampa Bay area.
Terry E. Smith, a court-appointed trustee who administers Chapter 13 repayment plans, says card debt appears to have "dropped significantly'' as a factor in filings.
"Credit cards are not the problem right now because nobody is sending out mass mailings for applications,'' he says.
But Theresa Radwan, a Stetson law school dean studying bankruptcy among the elderly, finds that older people are increasingly likely to declare bankruptcy because of credit card debt, unlike past years when medical bills were the primary reason.
"The hard part is that you don't know what the debt is incurred for,'' Radwan cautions. "It may still be medically based — they may be putting medical bills on credit cards — or they may be using disposable cash to pay medical expenses and using credit cards for other things.''
Tampa attorney Victor Veschio notices another trend — consumers racking up charges or getting cash advances on their cards shortly before declaring bankruptcy.
"That is occurring more and more,'' says Veschio, who represents Bank of America and other card issuers. "It's possibly desperation at being cash strapped, and using credit cards in lieu of cash.''
Though most credit card debts are dischargeable, that's not true with certain types of debt — those involving fraud; cash advances of more than $825 within 70 days of filing bankruptcy; and the purchase of luxury goods or services exceeding $550 from a single source within 90 days of filing. In such cases, credit card companies can sue the debtor in bankruptcy court to try to recoup the money.
In 2007, Veschio represented FIA Card Services in a suit against a disabled woman who went on a spending spree shortly before filing. Among her purchases: an $853 wedding ring and $1,454 in shoes and clothing for her daughter. She also got a $6,000 cash advance that she used to pay other bills.
The woman, 49, said she never expected to declare bankruptcy when she made the charges, but was short of money after her father, who supplemented her Social Security income, suddenly died. A judge held her liable for the ring and cash advance. But he discharged the rest of the debts, ruling that "they were reasonably acquired for the support and maintenance of her and her children.''
Why do card issuers let consumers rack up huge bills in the first place?
Of the 47 bankruptcy cases filed by Tampa Bay residents on Feb. 24 — the day President Barack Obama gave a major speech decrying Americans' free-spending ways — almost all had five-figure levels of credit card debt, the Times found. But none owed as much to a single company as the Hillsborough County woman with her $103,000 in American Express bills.
She did not respond to a written request for an interview. American Express, whose write-offs in February rose to 8.7 percent from 7.5 percent in December, does not comment on individual cases but said it regularly monitors consumers' debt-to-income ratios.
Nonetheless, some "card members have difficulty and we may not be aware of it,'' spokeswoman Lisa Gonzalez said in an e-mail.
The woman's bankruptcy petition shows that she and her husband, both disabled, live on $2,782 a month in Social Security income. Besides her American Express debt, they owe $178,680 on mortgages on their Valrico home and a lakefront lot in Tennessee.
In light of such cases, Tampa bankruptcy Judge Alexander Paskay is pleased that credit card companies are finally reining in both cards and customers.
Several years ago, "I was at a seminar in New Orleans and there was a lot of discussion about consumer debt,'' Paskay recalls. "I asked the Visa guy, 'Why on earth do you give people credit cards?' He said, 'It's business. If I didn't give them cards, MasterCard or some other company would. Our losses are tolerable.' "
Susan Taylor Martin can be reached at email@example.com.