NCPA - National Center for Policy Analysis

Why Bankruptcy Is High In Memphis

August 4, 1997

A University of Michigan study found that as many as 15 percent of Americans are prime candidates for bankruptcy. Curiously, residents of cities in the South are particularly vulnerable -- with filings in some of them more than twice the national average.

But the bankruptcy rate in Memphis, Tenn., is almost four times the national average.

  • In 1997 a member of one household in every 23 in Memphis will declare bankruptcy.
  • Nationwide, personal bankruptcies since 1994 have risen 44 percent, to 1.1 million annually -- while filings in the Memphis metropolitan area, which had a good-sized head start, rose 32 percent.
  • The average Memphis resident owes $10,137 in non-mortgage debt -- 18 percent more than the typical American.

Experts report that while most financially strapped Americans liquidate their possessions and wipe out their debts using Chapter 7 of the bankruptcy code, Memphians prefer to keep their property and make regular payments over five years under the terms of Chapter 13.

What are the reasons for Memphis's dubious distinction?

  • One is Tennessee's debt collection law, which makes it easy for creditors to garnish borrowers' paychecks.
  • Studies show that people are often pushed to bankruptcy through job-loss, illness or divorce -- and the divorce rate in Memphis is about 10 percent above the national average.
  • Some analysts note that Memphis has a culture of bankruptcy -- the city, itself, having gone that road in 1879.

Source: Kim Clark, "Why So Many Americans are Going Bankrupt," Fortune, August 4, 1997.


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