States With The Most And Least Bankruptcies – Forbes Advisor – Technologist

More Americans are filing for bankruptcy. Total bankruptcy filings increased by 13% nationwide during the 12-month period ending in September 2023, with business bankruptcies surging 30%.

Forbes Advisor analyzed data from the U.S. Courts to uncover which states are dealing with the most and least bankruptcy filings. We looked at filings for both individuals and businesses between September 2022 and September 2023.

Top Five States With the Most Bankruptcies

1. Mississippi: The State With the Most Bankruptcy Filings

The Magnolia State has the second-highest rate of personal bankruptcy filings nationwide, with 292 cases per 100,000 residents. It ranks sixth highest for business bankruptcy filings, with a total of 148 bankruptcies per 100,000 businesses. Mississippi houses a higher percentage of residents living below the poverty line than most other states.

2. Tennessee

While Tennessee has lower rates of poverty than other states on this list, it’s a close second when it comes to bankruptcies. Tennesseans hold the third-highest personal bankruptcy rates nationwide, with a total of 273 filings per 100,000 residents. The state ranks seventh highest for business bankruptcy filings, with a total of 139 cases filed per 100,000 businesses.

3. Nevada

Nevada is one of few states where businesses file nearly as many bankruptcies as individuals. Nevada ranks fifth highest nationwide for business bankruptcies, amounting to 185 filings per 100,000 businesses. The Silver State ranks seventh highest for personal bankruptcies, with 209 filings per 100,000 residents.

4. Georgia

Georgia has an above-average poverty rate for state residents and a high number of individual bankruptcies. Georgia ranks fourth highest for personal bankruptcy filings, with a total of 248 filings per 100,000 residents. The state comes in tenth for business bankruptcies, with 131 filings per 100,000 businesses.

5. Illinois

Illinois ranks eighth highest for business bankruptcies, with a total of 139 filings per 100,000 businesses. The state ranks tenth highest for personal bankruptcies, with a total of 182 filings per 100,000 residents.

Top Five States With the Least Bankruptcies

1. Vermont: The State With the Fewest Bankruptcy Filings

Vermont ranks as the state least impacted by bankruptcies overall. Vermont residents have the second-lowest rate of personal bankruptcies, with a total of 30 filings per 100,000 residents. The state ranks second lowest for business bankruptcies as well, with a total of 42 filings per 100,000 businesses.

2. South Dakota

South Dakota reports the lowest rate of business bankruptcies nationwide, with only 39 filings per 100,000 businesses. The state has a total of 66 personal bankruptcy filings per 100,000 residents, making it the tenth lowest nationwide.

3. Alaska (Tie)

Alaska ties with New Hampshire as the state with the third-lowest rate of bankruptcy when considering both personal and business filings. The state has the lowest rate of personal bankruptcies overall, with 25 cases per 100,000 residents.

3. New Hampshire (Tie)

New Hampshire residents are avoiding bankruptcy on both an individual and business level. New Hampshire ranks fifth lowest for personal bankruptcies, with roughly 50 cases per 100,000 residents. The state has 55 business bankruptcies per 100,000 businesses, the ninth-lowest rate nationwide.

5. Montana

Montana is one of the least populated states in the country, and its residents seem to have a handle on their personal and business finances. Montana had a total of 51 business bankruptcies per 100,000 businesses during the time period we analyzed, the seventh-lowest rate in our study. The state holds the eighth-lowest position nationwide for personal bankruptcies, with 57 filings per 100,000 residents.

Tips for Avoiding Bankruptcy

“No one plans to go bankrupt,” says Dan Ariely, author and professor of psychology and behavioral economics at Duke University. “But in the ebbs and flows of our financial sailings, unexpected things can happen, and sometimes, they create a downward spiral that makes bankruptcy the only solution available.”

According to Ariely, financial resilience and planning for unexpected negative financial events is essential. “We must fight our optimistic nature and assume life is going to hand us more bad cards than we’re planning for. We need to get ready for these.”

Here are a few tips to help you avoid filing for bankruptcy in case you’re dealt any of those bad cards.

Avoid consumer debt. Bankruptcy can become inevitable when high-interest debt starts piling up. Credit card debt, personal loans and other types of financing can add up quickly, and so can the minimum payments. Avoiding consumer debt by saving up cash for larger purchases and only buying what you can afford to pay for today is wise. This is easier said than done, but taking advantage of automated savings tools and debt management apps can help.

Negotiate medical debts. Medical debt is one of the primary causes of bankruptcy in the U.S. However, there are options for dealing with expensive medical bills that can help you lower or eliminate your debt. Contact your medical billing agency to try to negotiate your debts to a lower price. This may involve coming up with an installment plan to pay off your balances over time or reducing your balance to pay it all off now. Medical bankruptcy is not your only option.

Get on a budget. Putting together a spending plan for your money is the best way to cut back on overspending and avoid debt and bankruptcy. Budgeting doesn’t have to feel like deprivation—a good budget gives you control over your money and allows you to enjoy a coffee out without causing damage to your finances. The best budgeting apps can help you pull this off even if you don’t know how to make and follow a budget.

Boost your income. Increasing your income is helpful, but it’s not always easy. The best way to increase your earnings is to either negotiate a raise or find a legitimate side hustle. This might mean working more, but short-term sacrifices to increase your income can help you pay off burdensome debts and avoid bigger financial challenges in the long run.

Work with a credit counseling agency. If you’re already considering bankruptcy or heading in that direction, there are reputable credit counseling agencies that offer debt management plans and personal finance coaching to help you get back on track. Institutions like the National Foundation for Credit Counseling (NFCC) offer low-fee (or even free) services to help you come up with a realistic debt payoff plan, negotiate your debts and stop collections calls.

When Is Filing for Bankruptcy the Right Thing To Do?

While bankruptcy can be harmful, here are some instances when a bankruptcy filing might make sense.

Your wages are being garnished. If wage garnishment is causing you financial hardship, filing for bankruptcy may help you stop it. Before you choose to file, it’s important to meet with a bankruptcy lawyer to discuss the implications of this filing and ensure wage garnishment will cease.

You can’t pay back your debts. If you’re still overwhelmed by your monthly debt payments after exploring debt management plans and negotiating your debts, it may be time to consider bankruptcy. While this won’t simply wipe away your debts without consequence, it may be your only path forward if you’ve exhausted other options.

How Americans Can Prevent Filing for Bankruptcy

Filing for bankruptcy is a last resort for those straddled with insurmountable debt. To avoid it, consumers need to have a plan in place for handling those debts before they get out of control.

For many, this can include coming up with a debt payoff plan that allows you to pay off balances one step at a time, with two popular options being the debt avalanche and debt snowball methods. With the debt snowball method, you focus on paying off your lowest balance first. With the debt avalanche method, you focus on paying off the balance with the highest interest rate first. You’ll still want to maintain minimum payments on your other debts in the meantime.

If your payments are still too high, a debt management plan may help. You can work with a nonprofit credit counseling organization like the NFCC. They’ll negotiate debts on your behalf, come up with a reasonable payoff plan and help protect your credit score at the same time.

Which Savings Products Are Best To Help Americans Avoid Bankruptcy?

If you’re worried about falling into debt and facing bankruptcy, you might consider setting aside an emergency fund to avoid taking on debt should something bad happen. And if you’re a business owner, having money set aside for inevitable downturns can help you weather financial storms and avoid bankrupting your way out of debt.

By setting up automatic recurring payments into the right account, you can gradually build a rainy day fund while earning interest on your savings. Here are a few options for apps and accounts that can help.

Budgeting and savings apps. The best online banks offer mobile apps with handy savings tools, such as the ability to round up purchases and automatically transfer the extra to savings or the option to create “savings buckets” for different goals. Budgeting apps like YNAB, PocketGuard and Goodbudget also come with spending, savings and debt-payoff trackers.

High-yield savings accounts. High-yield savings accounts allow you to park emergency cash while earning competitive interest on your balance. These accounts are FDIC- or NCUA-insured against loss and offer a safe way to earn money while protecting your personal or business finances.

Money market accounts offer high yields and FDIC insurance. They sometimes require a higher minimum opening deposit or balance than savings accounts, but they tend to come with check-writing privileges or ATM cards for easier access to your funds.

Alternatives to Bankruptcy

While bankruptcy may seem like the only way out of a tough spot, there are a few alternatives.

Debt management plan. Debt management plans help you organize your debts, negotiate repayment terms and put a monthly payment plan in place. This can help protect your credit while making your monthly debt payments more manageable.

Debt consolidation. Debt consolidation involves taking out a loan to pay off all of your debts so you have just one balance to pay off. This can help you lower your minimum monthly payment and make steady progress toward being debt-free. And if you can snag a better interest rate and repayment terms, it can save you money in the long run. However, some loan programs can be predatory, so stick with reputable debt relief companies.

Debt settlement. Debt settlement is the process of negotiating a lower payoff amount for your debt than you owe in exchange for paying off the new balance in full. But watch out—if you pay less than you owe to settle your debt, the forgiven amount may be taxable.

Methodology

To identify the states with the highest rates of both personal and business bankruptcies, Forbes Advisor analyzed all 50 states and Washington, D.C., using the following two metrics:

• Number of business bankruptcies per 100,000 businesses: 50% of score. Bankruptcy filings data is obtained from the United States Courts, spanning Q3 2022 to Q3 2023. This information is cross-referenced with data from NAICS, which provides the number of registered businesses per state.
• Number of personal bankruptcies per 100,000 residents: 50% of score. Bankruptcy filings data is obtained from the United States Courts, spanning Q3 2022 to Q3 2023. This information is cross-referenced with U.S. Census data, which provides the number of residents per state.