21 May 2010

Bankruptcy Rate Rises In Mountain West

Bankruptcies are up more than 10% for January to April 2010 compared to the same period in 2009 for most of the Mountain West, the states around Lake Michigan, most of the urban Northeast, and greater Miami, Florida. Bankruptcy rates were declining, in contrast, in most of the South. Generally speaking, more urbanized areas were pinched more than more rural areas.

There are multiple ways to interpret the data.

One is as an artifact of the 2005 bankruptcy reform which ties the availablity of Chapter 7 relief and three year repayment plans under Chapter 13 (wage earner reorganizations) to the state median income. Everyone else has to seek onerous five year Chapter 13 repayment plans or forego bankruptcy relief entirely. So, part of the difference could stem from more stringent thresholds for bankruptcy relief in states with lower median incomes.

Another way to look at the data would be to partition the nation into four kinds of economies: (1) agriculture, forestry and fishing (2) mineral, (3) automotive manfacturing, (4) non-automotive manufacturing, and (5) post-industrial. In this division, the automotive manfacturing, mineral and post-industrial economies are suffering and producing high rates of bankruptcy, while agricultural, forestry and fishing, and non-automotive manufacturing economies are healthy or recovering.

A recovery in the non-automotive, but not the automotive sector of the manufacturing industry could explain why the bankruptcy is not high in places like the "New Rust Belt" in the South, and in the Pacific Northwest, both of which suffered significant unemployment earlier in the financial crisis as manufacturers laid off workers, but seem to be under less pressure now.

Surprisingly, the housing bust is a less accurate trace of the bankruptcy patterns than one might expect. Nevada is not at the top of the pile in terms of bankruptcy rate growth, despite the fact hat it has the worst housing situation in the nation. Yet, areas like Eastern Washington State, Montana, Wyoming, Utah, Colorado and Nebraska, which did not experience particular bad housing busts do have high bankruptcy rates.

No one theory is perfect, however. Alaska and Texas both have significant mineral extraction oriented economies, but have few bankruptcies, and the automobile oriented Northern Indiana and Ohio also seem to have little bankruptcy growth.

It may be easier to explain the pattern of rising bankruptcies as those areas hit hardest by the housing bust or automobile industry collapse, with Nevada, Northern Ohio and Northern Indiana's relatively low levels explained by outmigration from those areas of the people who would otherwise have filed for bankruptcy there, and with the Mountain West parts of the trend attributable to slumps in coal and hard metal mining.

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