Bankruptcy is usually a last resort for people who owe more money than they can possibly afford to pay.
Bankruptcy rates are also an important economic indicator. A rise in bankruptcy rates is a sign that economic stress is rising and more people have their backs against the wall.
Let’s look at some data on bankruptcy in America and see what the numbers show us.
Key Findings
- Total bankruptcies in the US have largely declined over time.
- The record peak of personal bankruptcy filings was in 2010, with 1,538,033 cases filed in just one year.
- In 2019, Chapter 7 filings accounted for 62% of total filings, while Chapter 13 filings accounted for the remaining 38%.
- On the federal level, filings per capita in the US is 0.12%.
- Alaska boasts the lowest bankruptcy rates, while Alabama has the highest rate of bankruptcy.
- 46% of bankruptcies are related to medical bills.
Total Bankruptcies in the US
Total bankruptcies in the US have largely declined over time.
Total Personal Bankruptcy Cases Filed Between 2008 and 2022
The latest data from the United States Courts indicate that 370,685 bankruptcy cases across all chapters were filed between January and September 30, 2022. This is the country’s lowest number of bankruptcy filings over a similar period in the past decade[1].
The record peak of personal bankruptcy filings was in 2010, with 1,538,033 cases filed in just one year.
Bankruptcies often spike during economic downturns. Recessions typically bring elevated levels of unemployment, and job loss can dramatically decrease an individual’s ability to pay debts. This often leads to bankruptcy.
The number of bankruptcy filings grew rapidly in 2008, peaking in 2010. This period is noted for an economic recession that led to millions of job losses. Bankruptcy filings declined as the economy recovered.
During 2019, more than 750,000 personal bankruptcy petitions were filed; about 733,000 petitions involved predominantly consumer-related debts. Approximately 62% of the petitions sought bankruptcy protection under Chapter 7 and 38% for Chapter 13.
The 2019 BAPCPA Report noted that consumer debtors seeking bankruptcy protection reported holding $83 billion in total assets and $113 billion in total liabilities. Total assets reported by consumer debtors rose 11 percent from 2018. Total liabilities for the same set of debtors fell 12 percent from 2018. The growth in assets in 2019 was primarily due to several debtors who reported total assets above $1 billion[2].
Impact of Covid-19 on Personal Bankruptcy Filings
The Covid-19 emergency intensified in March 2020, causing unemployment in the country to spike. The unemployment rate jumped from 3.5% in February to 4.4% in March 2020. The rate skyrocketed to 14.7% in April 2020[3].
Despite the skyrocketing unemployment, there was minimal change in the number of personal bankruptcy filings in the US during the quarter that ended on March 31, 2020, and June 30, 2020.
Consumer Bankruptcy Cases by Quarter
| Quarter Ended | Chapter 7 | Chapter 11 | Chapter 13 | Total |
|---|---|---|---|---|
| 06/30/20 | 90,993 | 103 | 28,145 | 119,241 |
| 03/31/20 | 109,180 | 209 | 65,757 | 175,146 |
| 12/31/19 | 106,465 | 210 | 68,337 | 175,012 |
For example, a total of 175,146 petitions were filed in the three months that ended March 31, 2020, a 0.08% increase from the three months that ended December 31, 2019. The next quarter (the three months ended June 30, 2020) saw the number of petitions fall 31.92% despite a record-breaking unemployment rate recorded in April 2020[1].
A similar scenario occurs when we zoom out and examine the bankruptcy filings from an annual perspective. One would have expected bankruptcy filings to increase exponentially in 2020 because of the coronavirus (COVID-19) pandemic. As stated earlier, higher rates of bankruptcy filings often coincide with periods of economic recessions.
The primary reason for this was the combination of stimulus payments and payment moratoriums that were implemented as a response to the pandemic. The US government suspended student debt payments, a major burden on many American households, and many private creditors showed an unusual willingness to reorganize debt payment schedules.
State-By-State Bankruptcy Statistics
On the federal level, the filings per capita in 2021 – the most recent year with complete personal bankruptcy filing information – was 0.12%.
Bankruptcy filings per capita in most states lie below the national average.
Bankruptcy Filings per Capita at State Level
On the federal level, the filings per capita in 2021 – the most recent year with complete personal bankruptcy Filings per capita in 29 states fall below the national average.
Wyoming has the lowest number of filings for every person who is a resident of the state, at 0.01%.
Alabama has the highest rate of personal bankruptcy filings in the country, at 0.30%.
State-by-state bankruptcy data
| State | Total Filings (December 31, 2021) | Population (July 1, 2021) | Median Household Income (2019) | Filings per Capita (%) |
|---|---|---|---|---|
| Alabama | 14940 | 5039877 | 50536 | 0.30 |
| Alaska | 218 | 732673 | 77640 | 0.03 |
| Arizona | 9884 | 7276316 | 58945 | 0.14 |
| Arkansas | 5493 | 3025891 | 47597 | 0.18 |
| California | 40972 | 39237836 | 75235 | 0.10 |
| Colorado | 6462 | 5812069 | 72331 | 0.11 |
| Connecticut | 3018 | 3605597 | 78444 | 0.08 |
| Delaware | 1667 | 1003384 | 68287 | 0.17 |
| Florida | 31541 | 21781128 | 55600 | 0.14 |
| Georgia | 21196 | 10799566 | 58700 | 0.20 |
| Hawaii | 1212 | 1441553 | 81275 | 0.08 |
| Idaho | 2000 | 1900923 | 55785 | 0.11 |
| Illinois | 20944 | 12671460 | 65886 | 0.17 |
| Indiana | 14487 | 6805985 | 56303 | 0.21 |
| Iowa | 2846 | 3193079 | 60523 | 0.09 |
| Kansas | 3521 | 2934582 | 59597 | 0.12 |
| Kentucky | 9094 | 4509394 | 50589 | 0.20 |
| Louisiana | 6049 | 4624047 | 49469 | 0.13 |
| Maine | 654 | 1372247 | 57918 | 0.05 |
| Maryland | 8323 | 6165129 | 84805 | 0.14 |
| Massachusetts | 3492 | 6984723 | 81215 | 0.05 |
| Michigan | 16922 | 10050811 | 57144 | 0.17 |
| Minnesota | 5754 | 5707390 | 71306 | 0.10 |
| Mississippi | 6166 | 2949965 | 45081 | 0.21 |
| Missouri | 9737 | 6168187 | 55461 | 0.16 |
| Montana | 654 | 1104271 | 54970 | 0.06 |
| Nebraska | 2589 | 1963692 | 61439 | 0.13 |
| Nevada | 6995 | 3143991 | 60365 | 0.22 |
| New Hampshire | 753 | 1388992 | 76768 | 0.05 |
| New Jersey | 10446 | 9267130 | 82545 | 0.11 |
| New Mexico | 1510 | 2115877 | 49754 | 0.07 |
| New York | 14734 | 19835913 | 68486 | 0.07 |
| North Carolina | 6577 | 10551162 | 54602 | 0.06 |
| North Dakota | 531 | 774948 | 64894 | 0.07 |
| Ohio | 20818 | 11780017 | 56602 | 0.18 |
| Oklahoma | 5932 | 3986639 | 52919 | 0.15 |
| Oregon | 4771 | 4246155 | 62818 | 0.11 |
| Pennsylvania | 10382 | 12964056 | 61744 | 0.08 |
| Puerto Rico | 3977 | 3263584 | 20539 | 0.12 |
| Rhode Island | 992 | 1095610 | 67167 | 0.09 |
| South Carolina | 3376 | 5190705 | 53199 | 0.07 |
| South Dakota | 599 | 895376 | 58275 | 0.07 |
| Tennessee | 15439 | 6975218 | 53320 | 0.22 |
| Texas | 19762 | 29527941 | 61874 | 0.07 |
| Utah | 5576 | 3337975 | 71621 | 0.17 |
| Vermont | 273 | 645570 | 61973 | 0.04 |
| Virginia | 12448 | 8642274 | 74222 | 0.14 |
| Washington | 6007 | 7738692 | 73775 | 0.08 |
| West Virginia | 1675 | 1782959 | 46711 | 0.09 |
| Wisconsin | 9279 | 5895908 | 61747 | 0.16 |
| Wyoming | 561 | 5578803 | 64049 | 0.01 |
| Washington DC | 309 | 670050 | 86420 | 0.05 |
| National Level | 399269 | 331893745 | 62843 | 0.12 |
Relationship Between Average Income in the State and the Rate of Bankruptcy
States with a low median household income experience higher rates of personal bankruptcy filings.
For example, Alabama has the highest rate of bankruptcy filings, more than twice the national average, and its median household income is more than $10,000 less than the national average.
On the other hand, states with extremely high median household income report very low personal bankruptcy rates.
For example, Washington, DC, has the highest median household income, more than $20,000 above the national average. The rate of bankruptcy filings (i.e., bankruptcy petitions per capita) is among the lowest (42% lower than the national average).
The chart below provides the clearest illustration of the relationship between average income in the state and the bankruptcy rate. The average income in the state has an inverse association with the bankruptcy rate: bankruptcy rates go up when average income reduces.
State Bankruptcy Rates by Chapter
Alabama has the highest bankruptcy rate across Chapters 7 and 13, with around 297 residents per 100,000 population petitioning bankruptcy courts for protection.
Next are Missouri and Nevada, with about 252 and 223 residents per 100,000 population, respectively.
Alaska boasts the lowest bankruptcy rates across Chapters 7 and 13; only about 30 residents filed for bankruptcy per 100,000 people.
Chapter 7 Bankruptcy Filing by State 2021
California recorded the highest number of Chapter 7 bankruptcy filings in 2020 and 2021, 42,663 and 34,855, respectively.
Alaska is on the opposite end of the scale, with 272 Chapter 7 filings in 2020 and 188 in 2021.
However, this ranking changes when we consider the number of filings per 100,000 people. Using this approach, Nevada has the highest bankruptcy rate, with approximately 197 petitions under Chapter 7 bankruptcy per 100,000 people. It is closely followed by Indiana (approximately 149 filings per 100,000 people), Ohio (approximately 142 filings per 100,000 people), and Michigan (around 133 filings per 100,000 people).
Wyoming reports the lowest bankruptcy rates, with approximately ten petitions under Chapter 7 bankruptcy per 100,000 people. Others at this level are Alaska (around 26 filings per 100,000 people), North Carolina (around 29 filings per 100,000 people), and South Carolina (around 31 filings per 100,000 people)[5].
Chapter 13 Bankruptcy Filing by State 2021
A similar scenario plays out when considering petitions under Chapter 13 bankruptcy. Focusing primarily on the number of Chapter 13 bankruptcy filings puts Georgia ahead with 10,985 petitions in 2021. Washington, DC shows the lowest numbers, with 31 Chapter 13 petitions filed in court for the calendar year 2021.
As with the previous analysis, the ranking dramatically flips when we shift the focus to the rate of Chapter 13 bankruptcy filings per 100,000 people. Alabama once again has the highest rate, with approximately 180 petitions per 100,000 people. Tennessee follows closely with around 110 filings per 100,000 people, Georgia (around 102 filings per 100,000 people), Mississippi (around 90 filings per 100,000 people), and Arkansas (around 86 filings per 100,000 people).
Wyoming boasts the lowest number of petitions under Chapter 13 per 100,000, with less than one. Other states in this category include Alaska, with approximately four filings per 100,000 people, Washington DC (around 5 filings per 100,000 people), North Dakota (around 6 filings per 100,000 people), and Maine (around 7 filings per 100,000 people)[5].
What Is the Number One Cause of Bankruptcies in America?
Most Americans petition the courts for bankruptcy protection due to financial strains emanating from medical bills – 46% of personal bankruptcies are related to uninsured medical expenses[6].
Other regularly cited reasons (especially after the 2007/08 Great Recession) include:
- Job loss
- Reduced income
- Divorce
- Credit card debt
Many bankruptcies involve two or more of these factors in combination.
How Much Does It Cost to File Bankruptcy?
The filing fee for a Chapter 7 petition is $338, and the filing fee for a Chapter 13 petition is $313. You can apply to pay these fees in installments, and if your income is low enough, you may qualify for a fee waiver[7].
Bankruptcy courts are administered by the federal government, so the filing fees are the same in every state.
Most bankruptcy filers hire attorneys to help them through the process. The forms are complex, and any mistake can lead to a case being dismissed.
Attorney fees for a Chapter 7 bankruptcy typically range from $500 to $3500, depending on the complexity of the case. The average is $1,450. Attorney’s fees for Chapter 13 bankruptcy typically range from $1500 to $6000, with an average of $3,000.
Attorney fees vary with the complexity of the case and the location. Costs are typically higher in urban areas.
