From time to time we see references regarding which state² or locality has the highest bankruptcy rate in the country. In this article, we show that there are several contenders for this crown, depending on how the rate is calculated. We rely on state-level rates for convenience, even though, as we have noted earlier, there are sometimes wide variations between judicial districts in a state and between divisions in a district.³ But for the purpose of showing that counting bankruptcies is subtler than one might think, using data by state will do.⁴ The filing statistics used here, unless otherwise noted, are for the year ended Sept. 30, 2003. The state rankings change slightly over time.

Total Filings

Based on total case filings alone, California is the perennial leader. There were 146,130 cases filed in California during the year ended Sept. 30, 2003. This is no surprise, since California's population of 35.5 million is about 60 percent more than second-place Texas. The top states in total case filings for the year were California, Florida (95,478 filings, 17.0 million population), Texas (89,469, 22.1 million population), Ohio (87,833, 11.4 million population) and Illinois (86,802, 12.7 million population). Each of these states was among the top seven states in population.

Filings Relative to Population

The easiest way to level the playing field in the bankruptcy sweepstakes is to divide filings⁵ by total population. A very different picture then emerges, with none of the leaders in total filings making the top five on the per capita list. Here, the current leaders are Tennessee (11.29), Utah (9.54), Alabama (9.41), Nevada (9.23) and Georgia (9.21). Each of these states has unusually high levels of chapter 13 filings. Based on chapter 7 filings alone, the national leader is Indiana. The top five states for chapter 7 filings relative to population are Indiana (7.18), Nevada (6.91), Oklahoma (6.82), Utah (6.52) and Oregon (6.15). The top five states for chapter 13 filings relative to population are Tennessee (5.74), Georgia (4.97), Alabama (4.84), Arkansas (3.60) and Utah (3.00). Utah is the only state to appear on all three of these lists.

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Based on total case filings alone, California is the perennial leader [in total case filings]. There were 146,130 cases filed in California during the year ended Sept. 30, 2003. This is no surprise, since California's population of 35.5 million is about 60 percent more than second-place Texas.

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Households

It is arguable that the household is a natural unit of consumer bankruptcy and should therefore be the basis on which rates across the states are compared. States differ considerably in average household size, ranging from a low of 2.21 in the District of Columbia to a high of 3.06 in Utah.⁶ The states with the highest filing levels based on filings per 1,000 households are Utah (30.14), Tennessee (29.23), Georgia (25.98), Nevada (25.60) and Alabama (24.49).

Joint Filings

There is also an argument in favor of disaggregating families by doubling the count of joint filings—after all, two people's debts are now in play. At the national level, nearly one-third of all filings are joint filings involving a married couple. There is considerable variation in the proportion of cases that are joint filings, ranging from a low of 6.3 percent in the District of Columbia to a high of 49.6 percent in Idaho. The top five in estates (joint cases counted twice) filed per 1,000 population are Tennessee (14.43), Utah (13.67), Nevada (12.58), Arkansas (12.41) and Indiana (12.24).

Adults

Still another variation on this theme is to observe that children do not file bankruptcies, so that the natural unit should be the number of potential filers, i.e., adults in the population. A further refinement would be to exclude the 2.2 percent of chapter 7 and 13 cases nationally that are listed as business cases. The net result of these two changes is a measure of bankruptcy based on consumer filings per 1,000 adults. When we make this calculation, the top five states are Utah (20.06), Tennessee (19.19), Nevada (17.61), Arkansas (16.64) and Indiana (16.62).

The chart opposite shows the state rankings for seven of the methodologies discussed above. Tennessee is the national leader for three, Utah for two, and Indiana and California lead in one each. As far as the lowest bankruptcy filing rate goes, Alaska appears to be the clear winner—ranking lowest on five of the measures and 49th and 51st on the remaining two.

Chapter 11 and Chapter 12 Cases

The state with the most chapter 11 filings for each of the past three years has been New York. Delaware was highest during 1999 and 2000, and California had the most chapter 11 filings each year between 1983 and 1998. The state leader in chapter 12 filings has varied. Nebraska is the current leader, a position it also held in 1987, 1988 and 1999. Between 1989 and 2002, Texas had the most chapter 12 filings 10 times, and Oklahoma, Illinois and California each led the nation for one year.

Conclusion

The lesson to be learned from this exercise is that determining relative bankruptcy rates among the different jurisdictions requires a prior decision about the proper denominator to use to even out population differences among the jurisdictions. This decision, in turn, should have some grounding in what the natural unit of consumer bankruptcy is.

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Footnotes

¹ All views expressed in this article are those of the authors and do not necessarily represent the views of the Executive Office for U.S. Trustees or the Department of Justice. Return to article

² A quick Google search revealed a variety of recent articles variously claiming that Missouri, Utah, Tennessee and Indiana had the highest filing rates in the country. Return to article

³ Bermant, Gordon, Flynn, Ed, and Bakewell, Karen, "Where Is Local Legal Culture? The Case of Consumer Chapter Choice," ABI Journal, February 2002. Return to article

⁴ Also included in the rankings are the District of Columbia and Puerto Rico. Return to article

⁵ Generally, this analysis includes all filings including chapter 11 and chapter 12 cases. Their inclusion has very little impact on the results, as these chapters comprise well under one percent of all filings. Return to article

⁶ American Community Survey Profile 2002, U.S. Census Bureau. Return to article