In Tennessee, bankruptcy rates reflect slow financial recovery

Tennessee had more bankruptcy filings per capita than any other state in 2013, a recent report shows, while overall bankruptcy filings were in decline nationwide.

Bankruptcy filings fell by 12 percent during the 2013 fiscal year, according to federal court data. Of the approximately 1.1 million total bankruptcies filed in 2013, all but about 44,000 were filed as individuals.

These are the lowest levels seen since 2007, before the onset of the global financial crisis. Although bankruptcy rates shot up across the country as Americans grappled with the effects of the Great Recession, filings have been declining gradually since 2010. With interest rates still relatively low and the nation continuing its slow economic recovery, many experts predict that bankruptcy filings will continue in this downward trend.

Unfortunately, however, the financial recovery has been occurring less swiftly in some parts of the country than others. Nationwide, the per capita bankruptcy rate was about 3.33 filings per 1,000 people in 2013. In Tennessee, people filed for bankruptcy nearly twice as often, at 6.59 bankruptcy filings per 1,000 people. Other states in the top five include Georgia, Alabama, Utah and Indiana.

How does bankruptcy work?

People who file for bankruptcy typically choose between two main types of personal bankruptcy, known as Chapter 7 or Chapter 13.

For individuals, the most well known type of bankruptcy is Chapter 7. Often referred to as "liquidation," this type of bankruptcy allows certain types of debts to be completely discharged, or eliminated. When a debt is discharged through Chapter 7 bankruptcy, the borrower is no longer responsible for paying it back. Some of the most commonly discharged debts during Chapter 7 bankruptcy include credit card debt and medical debt.

Besides the obvious benefit of eliminating debts and getting a fresh financial start, another advantage of Chapter 7 bankruptcy is that it is a relatively quick process that can usually be completed in a matter of months. However, in some cases - but not always - this type of bankruptcy may require borrowers to forfeit certain types of property.

The other common type of consumer bankruptcy is Chapter 13, which is sometimes called "debt reorganization." Unlike Chapter 7, Chapter 13 bankruptcy does not result in immediate discharge of debts. Instead, it requires borrowers to adhere to a debt repayment plan for a period of three to five years. If there are debts remaining at the end of the repayment period, some or all of them may then be eligible for discharge at that time. Although this process is slower than liquidation and requires more debts to be repaid, some borrowers - especially homeowners - prefer Chapter 13 because it typically does not require them to give up their homes or other property.

Talk to a bankruptcy lawyer for help

If you are struggling with debt and wondering whether bankruptcy could be right for you, be sure to talk your situation over with a knowledgeable bankruptcy lawyer. An attorney with a background in bankruptcy law can help you evaluate your options and choose the path that works best for your individual situation.