Rising Debt Burden

The latest data available show that households' payments on their consumer and mortgage debts amounted to 13.61 percent of their after-tax incomes, the highest level since the first quarter of 1998, when it was 13.62 percent. We observed in a previous issue of Spotlight that the "year-over-year decline in bankruptcy filings has been slowing for the past three quarters, despite continued strong growth in personal incomes and generally remarkable business conditions." The latest bankruptcy statistics (through early October) indicate that bankruptcies will likely end this year at about the same level as last, i.e., no additional decline in filings. Forecasts into 2001 suggest an upswing in filings.

Now a report from Chicago provides further evidence of debt stress. In an article in the Wall Street Journal, Bernard Wysocki, Jr. chronicles the rising levels of high-cost debt in Chicago's suburbs. "The payday loans storefront is becoming a fixture in the strip malls of Chicago suburbs, offering cash in advance of the next paycheck." He notes that Sonoma Financial Corp., with 30 offices in the suburbs, made 80,000 payday loans last year, but this year the loan volume is growing at a rate of about 20 percent a month. Further, when Sonoma started operating in 1997, there were just three payday loan offices in the suburbs. Today there are 500.

Foreclosure Report of Chicago notes that foreclosures in the greater Chicago area doubled to 17,813 in 1999 from 8,555 in 1993. However, the increase in foreclosures in the suburbs was negligible, in large part because of rising home prices in that area.