Tennessee continued its streak of having the highest per-capita rate of bankruptcy filings in the U.S. during fiscal year 2008, as numbers re leased Wednesday showed 6.92 filings per 1,000 people.
Experts said the increase might have as much to do with recent changes in federal bankruptcy statutes as with a weakening economy.
The total number of bankruptcy filings in the state, which included those made in personal and business cases, rose to 42,893, an increase of 18.6 percent compared with 2007. The eastern district of the state led the uptick, showing 30.8 percent more filings than a year earlier.
Henry E. Hildebrand III, a bankruptcy trustee for the Middle District of Tennessee, said there's no clear reason why the state has persistently led the nation in bankruptcy filings, but he pointed to the fact that the bulk of those were for Chapter 13, a court filing under which a person's debts are restructured.
"These are people who are actually paying off their debt," Hildebrand said. Each year, Tennesseans repay about $160 million to creditors, out of about $6 billion paid annually in the U.S.
Hildebrand said a federal bankruptcy reform package that went into effect in 2005 was meant to steer more people toward Chapter 13, so they'd pay at least some of what they owe. But he said that because of loopholes and special interest provisions in the new law — such as the fact that car loans take precedence over hospital and doctor payments — the changes might be having the opposite effect.
In fiscal year 2008, for example, Chapter 7 bankruptcy filings (in which a person's assets are sold to pay off debts) increased 28.6 percent over the previous year, compared with a rise of 11.5 percent in Chapter 13 filings in Tennessee's Middle District, which includes Nashville.
Figures may be skewedRobert Gonzales, a bankruptcy lawyer with MGLaw PLLC in Nashville, said that while part of the increase in bankruptcy filings has to do with the slower economy, the 2005 change in the law may have skewed the figures for the past two years.
He said that after a rush of filings that showed up in the 2006 numbers, there was a dearth of bankruptcy filings in 2007.
In the U.S., nearly 1 million individuals and businesses filed bankruptcy in the 12 months ended June 30.
There were 967,831 bankruptcy cases filed since July 1, 2007, up 28.9 percent from the prior 12 months. Non-business filings made up 96.5 percent of those cases, totaling 934,009.
On the business side, a total of 33,822 cases were filed in the 12-month period, including 23,372 under Chapter 7, which allows for an orderly shutdown of a small business. There were 6,513 Chapter 11 filings, which let a business continue to operate while it comes up with a plan of reorganization to pay some of its debts.
By region, the highest number of combined filings was in the U.S. Bankruptcy Court's 6th District, which encompasses Kentucky, Michigan, Ohio and Tennessee. The total came to 167,561, up 21.2 percent in the past year.
The largest percentage increase, 60.9 percent, was in the court's 9th District, which includes California, Arizona and Nevada, which are among the states hardest hit by the housing meltdown.
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