The total amount of consumer credit circulating in the United States rose by more than $21 billion last month, raising concerns that more people will begin filing for bankruptcy, according to a recent report from the Wall Street Journal.

The expansion of consumer credit represented the largest such surge since 2001 and was primarily caused by a rise in credit card use and an increase in student loan debt.

All told, total consumer credit in the country stands at $2.542 trillion, according to data compiled by the Federal Reserve.

Consumer Credit Sees Significant Spike

According to the Wall Street Journal, consumer credit reached lofty heights recently:

• Outpacing expectations. While economists predicted that consumer credit would increase by roughly $8.5 billion, consumers far surpassed expectations by adding $21.36 billion in new consumer debt to the American economy. This was the largest surge in consumer debt since November 2001.
• Easier credit. The sudden rise in consumer debt was not just a product of chance. Sources say that commercial banks have shown a heightened willingness to lend to consumers, especially in the first few months of 2012. As the banks continue to loosen their belts, consumers will likely begin accruing more credit.
• Impact of student loans. Sources attribute a significant portion of the increased debt to the recent shift in student loan borrowing. In recent months, more students have taken loans directly from the federal government, and the amount of federal student credit floating around the country rose to $460.2 billion last month, which was a $7 billion jump over the previous month’s figures.

The proliferation of student loans has made many economists nervous, despite the fact that these loans have given many low-income people access to higher education that they otherwise would not have had.

Tuition growth has far outpaced inflation in the past few decades, and many experts believe that a dangerous student loan bubble has formed.

In the short term, however, supporters of federal student loan programs believe that increased access to education is good for all Americans, regardless of the high levels of debt it entails.

Consumer Debt and Bankruptcy

With so much debt circulating in the United States, it is inevitable that many consumers will dig themselves into overwhelming trenches of debt.

Fortunately, U.S. bankruptcy laws provide an outlet for struggling consumers to relieve some or all of their debts, depending on their unique circumstances.

And as consumer debt passes the $2.5 trillion mark, personal bankruptcy may prove to be a crucial tool for protecting vulnerable American consumers.