Fitch Ratings expects personal bankruptcy filings will decline by 11% this year, citing data indicating filings were well below initial expectations in the first half of the year.

U.S. personal bankruptcy filings decreased by 13% year-to-date through June 30, according to The National Bankruptcy Research Center (NBKRC).

The decline in bankruptcy applications began in 2011, after four years of increases. Amid signs of slow improvement in the labor and real estate markets, personal filings last year declined by 11.6% to 1,353,186. The improvements came amid a pullback in consumer credit usage and overall reduction in household debt.

NBKRC reported 1.5 million filings in 2010, the highest level since 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act reduced the likelihood and amount of discharged debt in personal bankruptcy cases.

Since then, the drop in bankruptcy filings is having an impact on consumer asset-backed securities, particularly in the credit card sector, by holding many risk measures at cyclical lows. Bankruptcy filings typically comprise an estimated 30% to 40% of overall credit card chargeoff results and the improvements are helping offset unemployment pressures for consumers.

Fitch believes the pace of improvement will level off later this year, as banks appear to have begun loosening underwriting standards. Consumer borrowing rose by $17.1 billion in May from April, according to the Federal Reserve, pushing total borrowing to a seasonally adjusted $2.57 trillion, approaching the high reached in July 2008.

Increases over the previous 18 months had been attributed to auto and student loans, while credit card usage declined or stayed the same. That abruptly changed in May when credit card debt increased by $8 billion, its largest one-month jump in nearly five years.

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