An 18 Year Low

In a story at CNN Money, Bankruptcy filings hit 18-year low, the headline says it all. Here's what I noticed:

Those regions of the country that experienced the biggest drop in individual bankruptcy filing included parts of Louisiana, West Virginia and Oklahoma.

You don't say. [sarcasm] I would never have guessed. [/sarcasm]

Last year, nearly 600,0000 individuals filed for bankruptcy, down 71 percent (nationwide - ed.) from 2005, according to statistics released Monday by the Administrative Office of the U.S. Courts. The last time bankruptcy filings were this low was in 1988.

And it's not because debt levels are so much lower, either.

In a little bit of editorializing in its news story, the CNN Money article said this:

Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 in an effort to prevent consumers from abusing the bankruptcy system by clearing all their debts when they might have the ability to repay at least some of them.

So far the law appears to be working as intended by lawmakers. Last year, an increasing number of individuals filed for bankruptcy under Chapter 13 of the bankruptcy code, where individuals establish a payment plan with creditor. Before the new bankruptcy law took effect, the majority of Americans filed for Chapter 7 bankruptcy, where all unsecured debts were eliminated.

No, the reason you don't have more chapter 7 filings is because the poorer folk can't afford the new attorney fees and court costs (it now costs roughly twice as much as it used to). It isn't that they have more ability to pay their debts. Just look at the states listed above hit hardest by the new law (Louisiana, West Virginia and Oklahoma). Where do these states stand in terms of income and wealth for the United States? (Answer: they are all near the bottom in terms of income and wealth)

I would agree that it did have its intended effect: to hurt the middle and lower classes by moving closer to a debt peonage system.

If we could somehow find a way to raise the income levels in the poorer states, we probably would not have as many people needing to file bankruptcy. I would like to see someone create a geographic map showing per capita income by region. I would like to also see a comparison to conservative (red) states vs. progressive (blue) states. Rural states to urban states. Somehow I think there would be a lot of correlation.