Last year 1.35 million Americans more than 1 per cent of households in the U.S. declared bankruptcy. Delinquency rates on credit cards are also rising fast. The issue is an important one given that the U.S. Congress is currently debating major changes in the bankruptcy law.
Economists offer two major explanations.
Some blame the so-called risk effect, in which less creditworthy borrowers receive more credit than they can handle. Others point to a so-called stigma effect. This suggests that the social stigma associated with declaring bankruptcy or defaulting on credit cards has declined. As a result, borrowers are more willing to stiff lenders than they were in the past. So far that question has been difficult to answer.