State law is factor in bankruptcy, study finds
Most differences between states can be explained by wage garnishment rules
People have long considered how a state's bankruptcy rate reflects the demographics of its residents, but a new study by two BYU economists found state law and state bankruptcy court norms also contribute to a state's bankruptcy rate.
BYU professors Lars Lefgren and Frank McIntyre wrote in the study, published in the University of Chicago's Journal of Law and Economics, that about 70 percent of bankruptcy differences between the states can be explained by wage garnishment laws, the percentage of bankruptcies filed under Chapter 13 and demographics.
The authors looked at 28,000 bankruptcies in all 50 states from 1999 to 2001. During that time, Utah's bankruptcy rate was second-highest in the nation, after Tennessee, Lefgren said.
In 2005, Congress changed bankruptcy law to make it more difficult to file for bankruptcy, but Lefgren said that the conclusions of the study don't necessarily change because the authors looked at state laws and bankruptcy court norms.
Federal law allows creditors to garnishee up to 25 percent of a person's wages, if their income meets certain requirements. Some people declare bankruptcy because they are not taking home enough income after garnishments, Lefgren said.
But about half the states have garnishment laws that favor debtors. For instance, in North Carolina, creditors can garnishee 75 percent of a person's disposable income. "But their disposable income is a calculation after living expenses," Lefgren said, and people who make $100,000 a year can argue that 100 percent of their income goes to living expenses. The result is that in North Carolina, creditors don't bother garnisheeing wages, and as a result, North Carolina has one of the lowest bankruptcy rates in the United States.
In Utah, creditors can garnishee wages for six months. Then they have to get permission from a judge to renew garnishment.
"Utah falls on the relatively severe end in terms of debtors and what can be garnisheed," Lefgren said.
Chapter 13 bankruptcy is different than Chapter 7 bankruptcy because with Chapter 13, debtors are required to repay a portion of their debts to creditors in monthly installments. Chapter 7 bankruptcies result in the debtor selling assets and distributing proceeds among debtors. All unsecured debt vanishes, and most households don't have assets worth liquidating, Lefgren said.
But with Chapter 13 bankruptcies, the monthly installments can become too much and the debtors default. That can result in another bankruptcy filing.
Recent comments
By time people are sinking financially, their credit is gone. Sixty...
Anonymous | June 23, 2009 at 8:37 p.m.
What about all these 20'somethings that make start making a little $...
Debt? | June 23, 2009 at 8:09 p.m.
Roland, I refuse to believe that any large U.S. business engaged in a...
Dwight | June 23, 2009 at 10:41 a.m.
- Chargers rout Broncos, 32-3 6:34 p.m.
- Patriots defense stifles Jets 6:31 p.m.
- Find my family exploits 6:20 p.m.
- Will Oprah Winfrey fade away? 6:20 p.m.
- BYU stadium example of grass care 6:20 p.m.
- Architect is valuable when bidding 6:20 p.m.
- Lightning edge Thrashers in OT 6:19 p.m.
- 'Scroogenomics': Cut back Christmas 6:19 p.m.
- Moment of thanks at gas station 6:19 p.m.
- Single mom overwhelmed by kids 6:19 p.m.
- Glenn Beck to enter politics?
- BYU records with win
- Jazz outlast Pistons in overtime
- Cougars turn focus to dreaded rivals
- Cougars put the fun back in football
- Kirilenko heating up for the Jazz
- Former BYU professor remembered
- Wendover airfield's legacy lost?
- Police link alcohol to murder
- Utah Utes whip SDSU
- Buttars wants to limit gay rights laws
201 - Glenn Beck to enter politics?
180 - Palin plans tour stop in Utah
178 - BYU records with win
127 - Palin's book shows she's unqualified
125 - Officer cleared in Cardall Taser case
103 - BYU cuts Women's Research Inst.
100 - Jazz finally win in San Antonio
98 - Utes knock off rival Aggies
93 - Huntsman pleased with Obama
87
A little after midnight Wednesday morning, about 21 hours ago as I write...
There's a lot of reason to leave your plastic home as you shop:
will be decided by Byu's Rudy Defensive Backs. I'm betting that David Reed...
it would be awsome to watch !! a match made in in EGO-HEAVEN
I am a BYU fan so I am not exactly complaining, but can someone tell me why...
The purpose of religious law is to get us back to God. The purpose of...
for president 2012 LOL LOL i'd love to see it on a bumper sticker **...
Dems are at odds with the whole idea of what is best for the USA. Something...
until you play the Utes this weekend. Then it will only be fun for the Utes D.
lighten up. do you not have any humor? good article.
I was on the edge of my seat last year during the playoffs. That would so...
I am glad I got to be a part of a game that will go down in history. Even...

