U.S. consumers are likely to remain diligent about paying down their debts, while personal bankruptcy filings should drop again this year, according to a report by Fitch Ratings.
Personal bankruptcies fell by more than 14 percent last year, exceeding Fitch's forecast of 11 percent.
This marked the second annual decline since the Bankruptcy Abuse Prevention and Consumer Protection Act was passed in 2005. Fitch is projecting bankruptcies to fall another 6 percent to 7 percent in 2013.
This comes as the amount of consumer credit continues to rise. Total consumer credit reached nearly $3 trillion in November 2012, up 6% over 2011. Of that number, nearly $2 trillion came from non-revolving credit sources such as auto and student loans.
"Though consumers are taking out a record number of car and student loans, they continue to do a commendable job of paying that debt off," says Fitch Managing Director Michael Dean. "Momentum in both the housing and equity markets should also help drive personal bankruptcies lower."
This bodes well for Asset Backed Securities (ABS) collateral performance, which has been stellar for both credit card and auto ABS. That said, credit card delinquencies and chargeoffs will start inching higher toward historical norms in the coming months, according to Fitch.
The same historical leveling off will also hold true for auto loans. Nonetheless, Fitch expects asset performance to remain strong. Fitch's rating outlook for core consumer ABS sectors will remain stable to positive.