Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary Transmission

Charge-offs on credit card loans are rising sharply. While many analysts blame this trend on an expanding supply of credit cards, a closer look reveals the importance of two demand factors--wealth and the share of the population at peak borrowing age--in explaining the increase in bad debt.

This article presents arguments and evidence suggesting that the bankruptcy abuse reform (BAR) of 2005 may have been one contributor to the destabilizing surge in subprime foreclosures. Before BAR took effect, overly indebted borrowers could file bankruptcy to free up income to pay their...