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States with high foreclosure rates lead in filings

January 5, 2010

Though the economy appeared to improve slightly last year, 2009 was a terrible year for 1.3 million individuals and businesses who filed for bankruptcy protection, a 32 percent increase over filings for the first eleven months of 2008.

The statistics, gathered by the National Bankruptcy Research Center, measure consumer and business filings from December through November. December 2009 filings are not included in the total.

Bankruptcy filings in November 2009 topped 110,000, marking the ninth straight month they surpassed 100,000, and up 12 percent from November 2008’s total.

“Indeed, 2009 filings have now passed the year-to-date total for any previous year since the 2005 bankruptcy reform bill,” the Center’s analysis said.

What’s readily apparent is the increase includes a significant upturn in the last year in Chapter 7 (liquidation) filings, which have increased by more than 42 percent compared to this time last year, where Chapter 13 (rehabilitation) filings have increased by only 12 percent. The steadily declining share of Chapter 13 filings, less than 30% of 2009 filings to date, contrasts with the strong push by Congress in its 2005 bankruptcy legislation to encourage bankrupts to choose Chapter 13 rather than Chapter 7.

Nationwide, the filings to date amount to almost 11,500 filings per million households. The states with the highest household-adjusted filing rates are Nevada (two-and-half times the national average), followed by Tennessee, Georgia, Alabama, and Indiana, with household-adjusted filing rates more than one and a half times the national average.

More than one out of every six bankruptcy filings this year has occurred in one of those states, even though those states include only one in twelve American households. The lowest filing rates were in Alaska, followed by the District of Columbia, North Dakota, South Carolina, and South Dakota, all less than half the national average.

“The proportion of bankruptcies filed jointly has also increased from 30 percent to 36 percent over the past year, as more families seek relief through bankruptcy at the national, regional, and local level”, said Chris Lundquist, President of LCI.

Arizona Records Biggest Increase

The states with the biggest increase in filings since 2008 were Arizona, with an 80 percent jump, followed by Nevada, California, Wyoming, and Utah, all with increases of about 60 percent. Although 2009 filings are higher than 2008 filings in all states, several states have experienced comparatively modest increases. The lowest increases, all about 12-15 percent, are in Nebraska, Pennsylvania, Alaska, Tennessee, and South Carolina.

At the county level, the counties with the highest filing rates were concentrated in Georgia. Seven of the ten counties with the highest filing rates were in Georgia, with the highest rate in the county occurring in Shelby County, Tennessee, with a filing rate almost three times the national average. The second and third highest filing rates were in two counties east of Atlanta, both with filing rates more than two and a half-times the national average.

On a national basis, 28 percent of all filings to date were under Chapter 13, the procedure most directly related to home-mortgage distress. There was a substantial variation among the states on the prevalence of bankrupts seeking Chapter 13 relief.

The States with the highest share of Chapter 13 filings (50% or more in each case) were concentrated in the South: Louisiana, Alabama, South Carolina, and Tennessee. At the other end of the spectrum were States with relatively low Chapter 13 shares (all less than 10%). The three lowest were New Mexico, Iowa, and West Virginia, all with less than 10% of their filings under Chapter 13.

Professor Ronald Mann of the Columbia Law School, who analyzed the statistics for NBRC, told the Wall Street Journal that the numbers suggest Congress’s recent revision of the bankruptcy law was not very effective.

“I don’t think anybody who’s knowledgeable about the bankruptcy system thought the statute was well crafted,” he told the Journal.

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