State law and state bankruptcy court norms contribute to a state's bankruptcy rate

State law is factor in bankruptcy, study finds

Most differences between states can be explained by wage garnishment rules

By Laura Hancock

Deseret News

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.

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Deseret News | State law is factor in bankruptcy, study finds

They cannot garnish us in TEXAS!!