Bankruptcies low in states that don't seize wages

States that allow debt collectors to seize consumers' wages have sharply higher bankruptcy rates than neighboring states that prohibit or strictly limit the practice, an Associated Press analysis has found.

This link highlights a dilemma for credit-card companies and other debt chasers: By going after wages — an increasingly popular maneuver since the recession began, lawyers say — they risk pushing consumers into bankruptcy court, where judges can reduce or wipe away all sorts of financial obligations.

The apparent relationship between so-called garnishment laws and states' bankruptcy rates also bolsters the arguments of consumer advocates, who have long said that intercepting someone's wages to pay their debts only increases their financial vulnerability.

After gathering millions of bankruptcy records from 2006 until now, the AP plotted the number of filings for each U.S. county in its Economic Stress Map — a geographic, chronological and visual depiction of economic misery based on unemployment, foreclosure and bankruptcy data.

While bankruptcy rates vary for many reasons, the five states that prohibit or strongly limit wage seizures — North Carolina, Pennsylvania, South Carolina, Florida and Texas — all have drastically lower rates than their neighbors, with particularly striking differences along borders, where economic conditions are similar but bankruptcy rates are not.

South Carolina's bankruptcy rate is almost one-quarter that of Georgia's; Pennsylvania has half the rate of Ohio; North Carolina has about one-third the rate of Tennessee; Texas has a smaller rate than all its neighbors; and Florida has just about half the rates of Georgia and Alabama.

The Carolinas, Pennsylvania and Texas prohibit wage garnishment, except in special circumstances such as unpaid taxes or child support. Florida prohibits garnishing wages from the head of a household.

The nationwide bankruptcy rate is 42 percent higher than the rate in those five states.

Bankruptcy filings have been steadily rising since the end of 2005, when a change in federal law sent filing rates plummeting. The number of filings in May were 35 percent higher than a year earlier, and more than 1.2 million cases have been filed in the past 12 months.

Debts are usually delinquent for several months before companies target consumers for recovery. Creditors must get court approval to seize a person's wages or other assets. Federal law and state laws restrict how much can be taken — typically 25 percent of "disposable" income, or income after taxes and other legally required deductions.