New Bankruptcy Law Leaves More Bad Debt For Asta To Collect

by Mike Bevel, CollectionIndustry.com

Out of the carnage and wreckage wreaked by the new bankruptcy laws – poor, financially strapped consumers no longer allowed to wipe out credit card debt with a wave of Chapter 7 – arises, like a phoenix from the flames, a winner. And that winner is Asta Funding.

Asta buys, collects and manages portfolios of bad debt, mainly credit card, telecom and consumer loans. "The new act bodes very well for our company," said Asta Chief Executive Gary Stern. "There's a trend toward less bankruptcy filings, which is attributable to people being under more scrutiny to file or not."

Consumers who find themselves in a position to file for bankruptcy are now doing so under Chapter 13 – 70 per cent of consumers, as opposed to the once-upon-a-time figure of 30 per cent. “That unsecured debt is still collectable," Stern said. "That allows Asta a greater chance to collect on [instruments such as] credit card debt, whereas before when most filings were under Chapter 7 they or anyone else had virtually no chance of collecting on unsecured debt instruments."

It’s more than just bankruptcy that’s helping to push Asta Funding to the top – though certainly it doesn’t hurt. Also contributing to the wind beneath Asta’s wings is the American love affair with credit card. The amount of credit card debt outstanding stood at $840.8 billion in July, up 4.5% from last year, according to the latest data from the Federal Reserve Board. That's up from a 3.1% year-over-year-rise in July 2005 and July 2004.

Also, in the second quarter credit credit card, payments 30 days or more past due rose 4.41% from the prior year, up slightly from a 4.40% year-over-year gain in the first quarter, according to a survey by the American Bankers Association. And why the rise? Higher gas prices and interest rate hikes left consumers with less disposable income to meet expenses, including paying back their loans.

As James O'Brien of Ryan Beck & Co. put it, "This industry isn't tied to the economy. In good times, people will pay back debt, which drives cash collections, and in a slowing economy and recession, more bad debt is created to be purchased hopefully at lower prices."