Published in: Credit Cards | Dec. 9, 2019

Why Do These States Have the Most Bankruptcies?

By:  Dana George

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Why is it that some states have a higher rate of bankruptcy than others? Here are the five states that top the list. 

Despite strong employment numbers, bankruptcies nationwide are up 1% from October 2018, according to the American Bankruptcy Institute (ABI). The statistics show that five states have been hit particularly hard. To put it in perspective, the average national bankruptcy filing per capita is 2.50 per 1,000. 

These states, however, have a much higher rate.

A stressed young woman with her hands over her face.

Image source: Getty Images

1) Alabama

Bankruptcy filings per capita: 5.75 per 1,000

Poverty and unemployment: At 2.8%, Alabama's unemployment is below the national rate of 3.6%. However, their 16.8% poverty rate is considerably higher than the national average of 11.8%. With a state average income of $46,472, 17% of Alabamans take part in the Supplemental Nutrition Assistance Program (SNAP). 

Education: There are only six U.S. states where fewer residents have college degrees. According to the U.S. Census Bureau, 24.5% of adults have a bachelor's degree, and 85.3% have a high school diploma or higher. Of those who attended college, 13.9% are delinquent in student loan repayments.

2) Tennessee

Bankruptcy filings per capita: 5.47 per 1,000

Poverty and unemployment: The unemployment rate in Tennessee sits at 3.4%. However, Tennessee's poverty rate is 15.3% and 1 in 6 state residents receive SNAP benefits. In addition, with an average income of $48,708, Tennesseans earn considerably less than the national average. 

Education: Nearly 86.5% of Tennesseans hold a high school diploma or higher, and 26.1% have a bachelor's degree. Among those who have pursued higher education, 13.8% are behind on their student loan payments. 

3) Georgia

Bankruptcy filings per capita: 4.43 per 1,000

Poverty and unemployment: At 3.4%, Georgia's unemployment rate is slightly less than the national average. Their poverty rate is higher though, at 14.3%. The average income of $52,977 is higher than that of surrounding states, but 16% of residents depend on SNAP to help put food on the table. 

Education: 29.9% of adults in Georgia have a bachelor's degree, but 13.05% are behind on student loan payments. 86.3% of Georgians have at least a high school education. 

4) Mississippi

Bankruptcy filings per capita: 4.28 per 1,000

Poverty and unemployment: With a poverty rate of 19.7%, Mississippi is not only the poorest state in the country, they also suffer an unemployment rate of 5.5%. Approximately 18% of the state's population receives SNAP benefits. 

Education: 83.4% of adults have earned a high school degree or higher, and 21.3% hold a bachelor's. Of those who have attended college, 16.8% are late repaying student loans.

5) Nevada

Bankruptcy filings per capita: 3.82 per 1,000

Poverty and unemployment: Relative to other states on this list, the average income in Nevada comes in at a more desirable $55,434. At 12.9%, their poverty rate is below the national average of 13.1% and 15% of Nevadans are part of the SNAP program. 

Education: 23.7% of Nevadan adults have at least a bachelor's degree, while 85.8% have a high school education or more. Of those who attended college, 14.6% are behind on paying their student loans. 

Why do people file for bankruptcy?

Bankruptcies are often the result of a combination of factors, but according to The Ascent's research, these are the top six: 

  • Medical issues -- either the cost of care is too much or a person must take too much time off work to recover
  • Overextended on credit
  • Reduction of income
  • Unexpected expenses
  • Job loss
  • Divorce or separation

The American Journal for Public Health says medical issues are behind 66.5% of all bankruptcies. In fact, one harbinger of trouble is when a person loses their health insurance, as Americans are twice as likely to file for bankruptcy after their health insurance has been interrupted. With or without insurance, the Kaiser Family Foundation (KFF) reports that more than 25% of U.S. adults struggle to pay medical bills.

The credit card trap

Other big causes of bankruptcy are problems with credit and unexpected expenses.  Which is why the $868 billion in credit card debt held by Americans during the second quarter of 2019 is concerning, as is the increase in household debt.

One way to avoid problems is to keep control of your credit cards.

  • Don't hold more credit cards than you can manage. 
  • Avoid using your credit cards unless you can pay off the balance in full each month. 
  • Don't add authorized users to a credit card unless you trust them with your credit score. 

Life happens … but

No matter how well you live, there's no guarantee that you will never get sick, lose a job, or find yourself in another financially difficult situation. In short, you can only control what you can control. That said, bankruptcy should be considered an absolute last resort as it will impact your financial situation for many years to come.

Here are a few ways you can weather most financial storms and avoid things becoming so desperate that you need to file for bankruptcy:

  • Seek credit counseling help when you need it, before things spin out of your control. 
  • Take control of debt. Make debt repayment a priority and explore ways to make your debt manageable, such as tackling the highest interest debt first.
  • Set a budget and stick to it. If you are spending more than you earn, find ways to slash your expenses or boost your income.
  • Save at every opportunity and build up an emergency fund. That way, you have a cushion to get you through rough times. 

There will always be financial pitfalls to avoid. The trick is to take action before they swallow you up and bankruptcy is the only way out.

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