Bankruptcy Rates by State
Many people probably don’t know how many entities file for bankruptcy each year. By the end of 2020, 529,106 Americans had filed for bankruptcy, and that number was nearly double the number seven years earlier.seHowever, the United States is not a monolith, and regions can be subject to very different financial circumstances than their neighbors. These factors can affect the amount of credit the average resident or business may need to take out, in addition to potentially making it difficult to keep track of their payments. By looking at bankruptcy rates by state, we can get a better idea of where individuals and businesses are – and are not – grappling with debt.
Key points to remember
- The bankruptcy rate is a measure of all bankruptcy filings submitted for a selected area in a given year.
- At 107, Alaska had the lowest number of cumulative bankruptcy filings in 2021, while California’s 18,817 was the highest number reported so far for that period.
- Bankruptcy rates can help us make informed assumptions about a state’s economy based on the number of deposits, the rate of increase or decrease, and the type of deposits in question.
Understanding bankruptcy rates
For people or businesses unable to repay their unpaid debts, bankruptcy offers a way both for debtors to offload their financial burden and for creditors to receive some repayment for their investment. The request to initiate this legal process can be filed by either party, although it is most often made by the debtor. The debtor’s assets are measured and valued as part of the process, and then are likely used to repay at least part of the outstanding debt.
Anyone considering declaring bankruptcy should know that it is not without consequences. There is always the possibility that a federal judge will rule against the debtor or simply declare him ineligible. Additionally, bankruptcy filings will remain on credit reports for 10 years (except Chapter 13, which lasts for seven years); this in turn will result in a lower credit score.
The bankruptcy rate is a measure of all bankruptcy filings submitted for a selected area in a given year. This information is published monthly by the American Bankruptcy Institute (ABI), which lists cumulative deposits for each state, territory and District of Columbia in the United States since 2012. The ABI breaks this information down by amount and percentage of each of the three. most common bankruptcy chapters, in addition to including statistics on how the number of filings differs from month to month.sese
Keep in mind that the rate only lists the number of people and businesses that successfully file for bankruptcy each year, not the total number that actually applied. The official website of the American courts gives us a somewhat clearer picture: a monthly report detailing the number of bankruptcy cases filed, closed and pending. Note that the ABI is currently two months ahead of American courts.sesesese
Differences between the chapters on bankruptcy
Several types of bankruptcy filings fall under the Bankruptcy Code. As part of the ABI’s monthly bankruptcy figures, the total filings for each state are broken down by which of the three largest bankruptcy chapters (Chapter 7, Chapter 11 and Chapter 13) they are filed. Below are the descriptions of these chapters, along with the total number of filings for each as of May 2021.
- Chapter 7: This chapter applies to anyone (mainly individuals, although businesses can also benefit if they have little or no assets) who want to be free from unsecured debt (i.e. those that are not not backed by guarantees). Non-exempt assets are collected and sold to pay off unsecured debt as much as possible.seAs of May, 133,909 Chapter 7 bankruptcies had been filed in 2021, or 73% of the total amount.sese
- Chapter 11: This chapter is most often submitted by companies and very rarely by individuals. After Chapter 11 filing, companies can continue to operate while they develop a debt repayment plan under court oversight. This gives these businesses a chance to reorganize themselves, as well as to devise new ways to increase their revenues and reduce their costs.seAs of May, 2,108 Chapter 11 bankruptcies were filed in 2021, or 1.15% of the total amount.sese
- Chapter 13: This Chapter serves as an alternative to Chapter 7, in the event that an individual or business earns an income high enough to exclude them from Chapter 7 filing. Alternately referred to as the Wage Plan, Chapter 13 gives debtors more time to repay their creditors while retaining their non-exempt assets. This is accomplished through a reorganization of the debtor’s finances under the supervision and approval of the courts to create a short-term repayment plan, typically three to five years. seIn May, there were 46,375 Chapter 13 bankruptcies filed in 2021, or 25% of the total amount.sese
Additionally, a 2017 report from ProPublica found that black filers were more likely to choose Chapter 13, guided this way by attorneys who charged $ 1,000 to file Chapter 7 but lower or no fees to file. Chapter 13. As Chapter 13 does not have the same garnishment. and debt collectors’ protections as Chapter 7 — and putting in place repayment plans instead of paying off debt — it’s ultimately more expensive. Black Chapter 13 filers were also less likely than their white peers to complete their repayment plans. When non-payment results in their case being rejected, resulting in the removal of their creditor protection, many people can find themselves stuck in a cycle of continuous bankruptcy filing just to keep the lights on. It means losing money by partially paying off debts and then having to start over. While the study’s data is specific to Memphis, the trend is also visible for black debtors and Chapter 13 filings in the rest of the South, according to ProPublica.sesesese
The total bankruptcy filing fees for Chapters 7 and 13 are $ 338 and $ 310, respectively. Average legal fees for the same chapters are $ 1,450 and $ 3,000, respectively. Chapter 7 fees are usually prepaid, while a portion of the Chapter 13 fees will be built into the reimbursement plan. This may ultimately make Chapter 13 the only affordable option for some, even if it actually costs more in the long run.
Other notable chapters on bankruptcy include Chapter 9, Chapter 12, and Chapter 15. The ABI dataset, however, does not include any information on the total number of filings under these chapters.
State by State breakdown
In May, the total number of cumulative filings for all states, territories and District of Columbia in 2021 was 182,655. This represents a 15% drop from the previous month and a 29% drop since the start of the year. At 107, Alaska had the fewest cumulative bankruptcy filings in 2021, while California’s 18,817 were the highest number reported so far for that same period.sese
The ABI ranked New Hampshire as having the largest month-over-month drop in bankruptcy filings at 35%. Conversely, DC saw the largest month-over-month increase in bankruptcy filings at 13%. Although Guam saw the largest month-over-month increase at 150%, the U.S. territories were not included in the ABI rankings. This percentage is also less impressive when you consider that it means there were less than 13 bankruptcy filings in the previous month, based on the running total of 31 reported for Guam in May. By comparison, DC has 155 deposits so far, and a 13% increase would mean there were fewer than 138 the month before. Guam certainly saw a proportional increase in deposits, but it reported almost exactly the same numerical increase as DC.sese
On a cumulative basis, at 41%, Mississippi has so far experienced the largest drop in bankruptcy filings for all of 2021. Nevada has seen the largest increase in filings during this same period , although it has only been 1% since the start of the year.sese
A closer look at bankruptcy rates by state
Bankruptcy rates provide insight into how individuals and businesses in different parts of the United States handle their debt burdens. Of course, we can’t directly infer a lot of information with bankruptcy filings alone, but they can help us make assumptions based on the number of filings, the rate of increase or decrease, and the type of filings. question.
For example, 92% of New Mexico’s bankruptcy filings were Chapter 7, compared to only 0.14% for Chapter 11. Conversely, Delaware Chapter 7 and Chapter 11 filings were 42%, respectively. and 39.84%.seFrom this, given that Chapter 7 filings are typically submitted by individuals while businesses typically file under Chapter 11 – we can reasonably hypothesize that New Mexico’s economic situation is more favorable to businesses than to the general public. Meanwhile, Delaware’s percentages apparently indicate that individuals and businesses face relatively equal challenges with their debt.sese
Of course, all conclusions drawn from the ABI data are purely speculative and would require further research to substantiate them. For example, another possible conclusion that one could draw from New Mexico bankruptcy rates is that the percentage of Chapter 11 filings is so low because there just aren’t that many companies operating in. the state. However, given that there were 64,751 reported deposits for New Mexico in 2020, the above assumption seems much less likely.sese
Here is a final example of how bankruptcy rates can be used. The number of bankruptcy filings has been declining since the ABI started recording them in 2012. The trends almost leveled off in 2016 before dropping significantly after 2016. Given the economic impact of the COVID-pandemic- 19, this might come as a surprise. that the 2021 deposit total is not particularly high compared to 2020, given that the data covers almost the entire first half of the year.seFrom there, we can make some reasonable assumptions. Potentially, the most plausible is that stimulus payments and other economic measures have kept individuals and businesses afloat enough that they haven’t yet needed to seek bankruptcy protection.
The bottom line
The excellent performance of all states since the start of the year, as well as the general trend of state bankruptcy filings declining month-over-month, with only increases in North Dakota and DC , would seem to indicate that the economic recovery underway after the COVID-19 pandemic is helping individuals. and businesses manage their debts. Of course, bankruptcies were already on the decline and 2021 is not over yet. It is entirely possible that we will still see a massive increase in bankruptcy filings by the end of the year as government stimulus and other pandemic assistance initiatives take a hit. end.