Why Tennessee has the highest bankruptcy filing rate

According to recent data, Tennesseans file bankruptcy at the highest rate.

Although the effects of the 2008 recession have largely dispersed, many Americans are still struggling financially. According to recent data, this is especially true in Tennessee. A recently released report indicated that the number of bankruptcies filed within the state is the highest rate nationwide.

According to the Memphis Business Journal, an average of 5.17 people out of 1,000 file for bankruptcy in Tennessee. This is about double the national average of 2.39 per 1,000. To give perspective, Alabama was reported as the state with the next highest rate of bankruptcy filings at 4.83 filings per 1,000.

Why is the filing rate so high in Tennessee? An analysis of the data found that this can be explained because many Tennesseans are in danger of losing their homes in a foreclosure sale. It was found that Tennessee residents were more likely than their national counterparts to file Chapter 13 bankruptcy. This is unsurprising, since this type of bankruptcy is especially helpful in staving off foreclosure. In some counties within the state, 56 percent of bankruptcies filed are Chapter 13, which is significantly higher than the national average of 31 percent.

How Chapter 13 can help with foreclosure

As mentioned earlier, Chapter 13 bankruptcy is often a superior choice for those facing foreclosure. Although Chapter 7 bankruptcy can help some with this problem, it often is not enough to save the home for many. As a result, most people facing foreclosure are better off filing Chapter 13.

In general, Chapter 7 bankruptcy works best for those that are unable to keep up with their mortgages because of other burdensome unsecured debt. Since Chapter 7 quickly eliminates most of this type of debt, it can free up income to be devoted towards the mortgage payments. Although filing Chapter 7 pauses the foreclosure process, if the mortgage is not made current within a short time, the lender may seek to restart the foreclosure process.

Conversely, Chapter 13 offers filers better protection against foreclosure. This type of bankruptcy allows the mortgage arrearages to be repaid in monthly installments over a three to five-year period. Since the installment payment amounts are based on the filer's income, they are kept affordable. During the repayment period, the lender may not foreclose on the home, so long as the agreed monthly payments are made. At the end of Chapter 13, the filer has a clean financial slate and has become current on the mortgage.

Speak with an attorney

If you are struggling with your mortgage, you have several options at your disposal, provided you act early. An experienced bankruptcy attorney can review the available options and recommend one that would be best for your unique situation.