A new perspective on rising nonbusiness bankruptcy filing rates: analyzing the regional factors.

Nonbusiness bankruptcy filing rates have increased almost fivefold since 1980. This alarming growth was largely the impetus for the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The intent of the new law, which went into effect in October 2005, was to eliminate alleged abuses

In deliberations on the new law, Congress expressed concern about the underlying causes of bankruptcy. The tools currently available for analysis leave serious gaps in understanding bankruptcy behavior. While many studies have sought to discover the causes of the rising filing rates, they have largely focused on aggregated data over time. This approach is logical--but ignores the considerable variation in filing rates across regions. Only by examining the regional differences in rates can we gain meaningful insight into their causes.

This article describes a new model of county bankruptcy filing rates. The model contributes to the current understanding by improving on some of the approaches already used in other studies and by including a number of determinants not previously considered.

The first section of the article describes the findings of earlier studies that looked at rising nonbusiness bankruptcy filing rates. The second section uses the new model to reveal a number of regional variations in the underlying factors of the rising filing rates. The article concludes that homestead exemptions and wage garnishments can be effective policy levers in managing rising bankruptcy filing rates. It also finds that social issues--stigma, gambling, and health insurance, among others--are critical regional factors that may help explain the rising bankruptcy filing rates. Finally, the article shows that higher levels of self-employment, another regional characteristic, are associated with lower bankruptcy filing rates.

I. CURRENT UNDERSTANDING

Bankruptcy filing rates in the United States vary considerably by county (Figure 1). In 2000, nonbusiness bankruptcy filing rates in counties with over 50,000 people ranged from only 0.5 per 10,000 households to roughly 410 per 10,000 households. This section discusses the factors commonly believed to be responsible for such variation. Some of the factors are policy levers that can be directly employed by government to manage bankruptcy filing rates, while others are social issues that have often been underappreciated in the existing literature on bankruptcy. The section also examines the potential role of self-employment in explaining bankruptcy filing rates.