Financial Struggles are a serious issue in Alabama. In 2019, Alabama had the highest per capita bankruptcy filing rate in the country. At 5.62 filings per 1,000 people, Alabama more than doubled the national average. Neighboring Tennessee and Mississippi were also among the top five states. 2019 was no exception–Alabama has held the top slot for per capita filings for several years. And, the state has so far continued to hold the lead in 2020. 2020 rates have dropped across the country due to the disruption of the pandemic, but Alabama remains far above the national average.
Why is the Bankruptcy Filing Rate High in Alabama?
Brad Botes, a principal attorney with the Bond & Botes Law Offices, says that many different factors impact the decision to file for bankruptcy protection. And, of course, no geographic region has cornered the market on financial stress. But Alabama residents face some challenges that may help explain the high rate of filing. For example, according to AlabamaPossible’s 2020 Barriers to Prosperity Data Sheet:
- Alabama is the 5th poorest state in the nation
- The Alabama poverty rate is 16.8%–significantly higher than the 13.1% national poverty rate
- 10 Alabama counties, or 15% of counties in the state, have poverty rates above 25%
- Only two Alabama counties have poverty rates below 10%
With those statistics in mind, it’s no surprise that Alabama residents have more debt struggles than the average person in the United States. For instance:
- 39% of Alabama households have at least one debt in collections, compared with 31% nationwide
- 16% of Alabama student loan borrowers are in default, compared with 13% nationwide
- Alabama has a 6% auto loan delinquency rate, compared with 4% nationwide
- Alabama has a 6% credit card delinquency rate, compared with 4% nationwide
- 21% of Alabama households have medical debt in collections, compared with 16% nationwide
The disparity is even greater in some Alabama communities. For instance, 44% of households in Mobile County have debt in collections. 20% of the county’s student loan borrowers are in default.
Alabama’s Pandemic Response Hasn’t Provided Much Financial Help
During a time when working people all over the country are suffering financial setbacks due to rising unemployment, rising grocery bills, and shrinking available credit, it stands to reason that those who had little buffer will be hit the hardest. But, the response has differed significantly from state to state. Recently, the global anti-poverty organization Oxfam ranked Alabama dead last on its list of the best states to work in during Covid-19.
The rankings were based on 27 data points, broken out into three broad categories: worker protection, healthcare, and unemployment support. Researchers compared all 50 U.S. states and the District of Columbia and Puerto Rico. Alabama scored poorly in all three categories, coming in 48th for worker protections, 49th for healthcare, and 52nd for unemployment support.
Some of the reasons for the state’s poor rankings include Alabama not having expanded Medicaid, lack of access to housing support, no grace period on healthcare premium payments, no cost-sharing waiver for Covid-19 treatment, low unemployment compensation caps and no housing assistance.
In other words, the state hasn’t done much over the past six months to offer relief or a safety net to the many who were already struggling, or those who were close to the edge and have seen their circumstances worsen as unemployment spiked, some basic costs increased, and families faced new obstacles.
Alabama isn’t alone in this. Three of the other four states that round out the top five for per capita bankruptcy filings–including Mississippi and Tennessee– also near the bottom of the list. It’s not surprising that people in states with fewer protections for workers, inferior unemployment benefits, more limited access to medical care and generally fewer safety nets are more likely to file bankruptcy.
Consumer Bankruptcy in Alabama
Too often, people in financial trouble look at filing bankruptcy as an admission of defeat. That can lead to self-destructive decisions, such as continuing to juggle debt for years, racking up interest and late fees and never seeing any improvement. It’s important to remember that both Chapter 7 and Chapter 13 bankruptcy were specifically created to help people who are overwhelmed by debt escape from that cycle and move forward.
In part, of course, that’s designed to benefit individuals and families trapped by unmanageable debt. But, it’s important to understand that there’s a larger purpose. When you’re struggling to cover interest payments and late fees month after month, you’re not spending money in a way that benefits the economy. When you resolve your debts and have disposable income again, you’re free to spend your money in a way that supports jobs, increases the tax base, and otherwise benefits the community as a whole.
If you’ve been suffering through long-term debt challenges because you thought it was the honorable thing to do, you owe it to yourself, your family, and even your community to contact Bond & Botes to learn more about the relief bankruptcy can offer.
At Bond & Botes, we’ve been helping people resolve their debt problems for decades. We know financial stress takes a toll, and that you have difficult decisions to make. We offer free, no-obligation consultations to help you get the information you need to make smart decisions for your future.
Kevin Bowers is an associate attorney working in the Bond & Botes Law Offices in Mobile, Alabama. He holds a Bachelor of Science from Auburn University, and a Juris Doctorate from Birmingham School of Law. Kevin enjoys working in the bankruptcy field for its ability to help people change their lives through the process. Read his full bio here.