While the societal costs and benefits of bankruptcy and the extent of bankruptcy laws in general is a contentious subject, almost everyone agrees that excessive or frivolous use of bankruptcy is detrimental to an economy and would reveal irresponsibility on the part of individuals. On the subject of bankruptcy, following are some statistics and some thought to consider.
I took the data found here:
http://www.uscourts.gov/Press_Releases/bk302.pdfNONBUSINESS BANKRUPTCY CASES COMMENCED, DURING THE TWELVE-MONTH PERIOD ENDING MARCH 31, 2002. . . Then the total filings divided by 2000 population numbers of each state to compare bankruptcy rate per capita:
626 per 100,000 people =ID
478 per " "= WY
424 per " "= MT
348 per " "= ME
360 per " "= DE
342 per " "= SD
314 per " "= ND
292 per " "= NH
271 per " "= VT
215 per " "= AK
As a measure of personal financial responsibility, these statistics are not very meaningful, as one should compare these statistics to state GDP growth and per-capita income levels as well because sometimes the most honorable people are forced into bankruptcy for reasons beyond their control. Idaho, for instance, experienced a large down-turn in the high tech sector recently due to over-capacity in semiconductor production, which was a major employer leading to a chain of bankruptcies. It would be more ideal to grasp the levels of debt burden by measuring debt per income+asset levels to reveal how people allow themselves to amass excessive debt, as this is generally the trend. Gathering this data would be much more complex, perhaps someone will bring anything already done on this to the attention of this forum.
It would also be important to examine and compare any trends over a few years since this is a one-year snapshot.
More important than any other consideration in influencing bankruptcy filings, however, is state law. Yes
state law! Even though the "Federal Government is granted authority over bankruptcy law through the U.S. Constitution (Article 1, section 8 ), the Federal Government has historically left bankruptcy law for state governments to enact." In the scholarly literature, one paper by Lawrence Shepard in 1984 modeled bankruptcy filings as a function of economic and legal factors. "What he found was that states with lower exemptions had nearly the same bankruptcy rate as states with the higher federal exemptions." In 1994, in a report by researchers Peterson and Aoki, it was concluded that "wage garnishment puts more pressure on the debtor to file for bankruptcy." This academic literature is cited in a 50 page thesis by John V. Mulligan called
The Impact of State Exemptions on Personal Bankruptcy Filings I lifted the above quotes from this source as well. This corresponds quite a bit with my research that I did on garnishment laws, on the
freedom indices thread where I put the following state ranking:
1. WY, ID, MT (no additional state law to federal provision)
2. SD (limited 60 day period, then reverts to federal provision)
3. ND (almost like federal provision)
4. AK (states exact dollar amount for clarity)
5. ME
6. NH –excess paperwork barrier to issue ongoing garnishment
7. DE -difficult to collect on worker making less than ~$30,000/yr.
8. VT - the law is so liberal and vague, open to broad interpretation of what is a 'proper wage' ~‘living wage?’.
Notice how the three highest bankruptcy states above correspond with the states that have 'no additional state law to federal provision'. Other than this, I won't promote my assessment of garnishment laws to correlation on rate of bankruptcy except to say that I remain disgusted with Vermont's access to the courts by creditors, and it shows that people have little motivation in Vermont to file for bankruptcy since the average creditor has to jump high hurdles to ever get to them.
With only these two provisions in mind, citizens of Alaska do seem to be a bit more responsible with credit, but then the large seasonal and migrant/ temporary population in Alaska may confound that.
Delaware ranks higher than these factors alone would say, maybe there are specific laws in Delaware for unsecured credit co-written by all the banks there, or maybe the higher income levels, or the many people employed in the banking industry there who understand how credit works.
After doing all this work, I find too many confounding variables to rank any state by bankruptcy filings or find a way to compartmentalize this data into a spreadsheet, except to say that given what I know, Delaware looks kind of good for people knowing how to stay within their means and that more people declare bankruptcy in the Intermountain West possibly because collection laws do not protect the debtor any more than federal levels.
