Why Does Tennessee Have Such a High Rate of Bankruptcy?

Forbes recently released data about national bankruptcy filings, and the Tennessee bankruptcy rate came in just behind Mississippi.

With 273 personal bankruptcy filings per 100,000 residents and the seventh-highest business bankruptcy rate in the country, it’s clear that many Tennesseans are struggling with debt.

But why is bankruptcy so common here?

As a bankruptcy lawyer, I’ve seen firsthand the factors that contribute to this high Tennessee bankruptcy rate. Let’s take a closer look at why so many people in Tennessee are turning to bankruptcy for relief.

High Levels of Debt and Easy Creditor Laws

One of the main reasons for Tennessee’s high bankruptcy rate is the high level of personal debt. Many residents carry significant amounts of credit card debt, medical bills, and student loans.

When people face unexpected expenses or a drop in income, it can be nearly impossible to keep up with these payments. As the bills pile up, bankruptcy becomes a way out from under this overwhelming debt.

However, this is a problem nationwide. What makes Tennessee’s rates higher than normal may come down to how easy it is for creditors to collect on debt here.

In Tennessee, debt collectors can take as much as 25% of a worker’s paycheck through wage garnishment. That’s a higher amount than many states.

In addition, we have something called self-help repossession. Self-help repossession is when a lender can take back property, like a car, without using any sort of legal action or court involvement. This means it’s easier to repossess a car than in many other states. 

All of these debts, and the ease with which they can put someone in trouble, help explain our bankruptcy rates.

Low Wages and Employment Challenges

While Tennessee has a lower unemployment rate than some states, wages are often lower too. And wage stagnation is a huge problem here.

Tennessee has the tenth-slowest salary growth in the U.S., with wages having increased by 3.47% from March 2023 to March 2024. Add inflation, and those wages easily disappear.

In addition, many people in Tennessee work in industries that don’t pay as well as jobs in other parts of the country. This means even if you’re working full-time, it can still be difficult to cover all your expenses – especially if you have a family to support or are dealing with high costs like medical bills or debt payments.

High Medical Costs

Medical debt is a major factor in bankruptcy cases across the nation, and Tennessee is no exception. Even with health insurance, many people face high out-of-pocket costs for medical treatments, prescriptions, and hospital stays. A sudden illness or injury can lead to thousands of dollars in medical bills, which can quickly become unmanageable.

With no better option, bankruptcy helps people eliminate their medical debts and start fresh.

Financial Education and Generational Wealth

Another reason for Tennessee’s high bankruptcy rate is a lack of financial education. Many people don’t fully understand how credit works, how to manage debt, or how to budget effectively. This can lead to poor financial decisions, like taking on too much credit card debt or not saving enough for emergencies. Without the right tools and knowledge, people can find themselves in a financial hole that’s hard to climb out of.

While every state has issues with financial education, it can be easier to manage money if you come from a lot of it.

Tennessee ranks 36th in personal income, and that’s after decades of growth. Many families in our area don’t come from “old money” like some of the wealthiest states and didn’t inherit large sums of money over the years.

It can take time, across many generations, not only to build wealth but to teach the skills of how to manage wealth once you have it.

Impact of Predatory Lending

Tennessee has a high number of payday lenders and other predatory lending practices that target people in financial distress. These loans often come with extremely high interest rates and fees, trapping borrowers in a cycle of debt.

When people can’t pay off these loans, they may see bankruptcy as their only option to get out of the cycle and rebuild their finances.

The Role of Bankruptcy Laws

Tennessee’s bankruptcy laws make it relatively easy for people to file for bankruptcy compared to other states. For example, Tennessee has a generous homestead exemption, which allows you to protect a significant amount of equity in your home.

This means more people may choose bankruptcy as a viable option to protect their assets while discharging their debts.

What Can You Do if You’re Struggling?

If you’re struggling with debt and considering bankruptcy, you’re not alone. Many Tennesseans are facing the same challenges. The first step is to understand your financial situation and explore all your options.

Speaking with a bankruptcy lawyer can help you determine whether bankruptcy is the right choice for you or if there are other ways to manage your debts.

Bankruptcy isn’t something anyone wants to go through, but it can be a powerful tool to help you get back on your feet. And the sooner you act, the sooner you can get a fresh start and begin rebuilding your life.

If you’re feeling overwhelmed by debt, don’t wait until it’s too late. Don’t risk your car, home, or wages. Reach out to me today, and let’s discuss your situation for free.

Just contact me online or call us at 901-327-2100. Together, we can explore your options and find the best path forward to financial stability and peace of mind.