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While every state in America is wonderfully unique, there's one thing they all have in common: A portion of their residents will experience bankruptcy.
As part of our ongoing look at debt in the U.S., Experian analyzed consumer credit data from August 2021 to see which states had the consumers with the most bankruptcies in their credit history. Our analysis looked at all 50 states in the U.S. and Washington, D.C., exploring how bankruptcies and debt differed across the population.
We found that the majority of states with the most bankruptcy filings are concentrated in the South, which is also where the poverty rate is the highest.
Experian's data reveals that Alabama has the highest bankruptcy rate per consumer, at 0.14, which is equivalent to 14 bankruptcies for every 100 residents. For context, the state with the lowest bankruptcy rate is Vermont, where the average bankruptcy filing per consumer is 0.01—or 1 out of every 100. Read on for our in-depth insights and analysis on states with the highest bankruptcy rates.
10 States With the Highest Bankruptcy Rates
1. Alabama
This state significantly leads all other states for the average number of bankruptcy filings per consumer. Additionally, the average credit score here is the third-lowest among all states analyzed. Contributing factors could be that Alabama is the state with the seventh highest level of poverty, according to the U.S. Department of Agriculture. The state also has one of the lowest personal income levels in the country (ranked 48th), according to the U.S. Bureau of Economic Analysis.
- Average number of bankruptcy filings per consumer: 0.14
- Average overall debt: $72,062
- Average FICO® Score☉ : 691
2. Kentucky
While the average credit score for Kentucky residents is higher than in Alabama, and their average total debt load is lower, the state still has one of the highest bankruptcy rates in the country. The state suffers from the sixth highest poverty rate in the country, with personal income levels here the 45th lowest in the nation.
- Average number of bankruptcy filings per consumer: 0.11
- Average overall debt: $68,624
- Average FICO® Score: 702
3. Mississippi
Among the 10 states with highest bankruptcy rates, Mississippi's residents carry the least overall debt. But among all states we analyzed, Mississippi residents have the lowest average credit score. 2019 Census data found Mississippi had the highest percentage of people living in poverty of any state—19.5%.
- Average number of bankruptcy filings per consumer: 0.11
- Average overall debt: $60,375
- Average FICO® Score: 681
4. Nevada
Home to tourist destinations like Las Vegas, Nevada was hit hard in the pandemic, resulting in one of the highest unemployment rates in the country as of September 2021. Among the top 10 states for bankruptcy, Nevada has the highest debt average, and is the only one in this list that exceeds the national debt average of $92,727.
- Average number of bankruptcy filings per consumer: 0.11
- Average overall debt: $105,113
- Average FICO® Score: 701
5. Tennessee
Like many other Southern states, Tennessee's residents are more likely to face economic insecurity. Tennessee has the 11th highest poverty rate in the country, and residents' personal income ranks 38th out of all 50 states. This could help explain why The Volunteer State experiences one of the nation's highest bankruptcy rates.
- Average number of bankruptcy filings per consumer: 0.11
- Average overall debt: $83,508
- Average FICO® Score: 701
6. Ohio
Residents in the Buckeye State have a higher average credit score than the national average of 710, and as of 2020, their personal income ranked at a modest 29th out of 50. Still, Ohio experiences bankruptcy rates at 10 per 100 consumers.
- Average number of bankruptcy filings per consumer: 0.10
- Average overall debt: $70,488
- Average FICO® Score: 715
7. Illinois
Illinois, the sixth most populous state according to the 2020 Census, was also hit hard by the pandemic. As of September 2021, only 60% of jobs had been recovered—the ninth worst in the country, according to a University of New Hampshire study. On a positive note, the state has the highest credit score average on our list, and it's also higher than many other states with lower bankruptcy rates.
- Average number of bankruptcy filings per consumer: 0.10
- Average overall debt: $85,146
- Average FICO® Score: 720
8. Georgia
Even though Georgia had the eighth highest gross domestic product in the nation in 2020, the Southern state experiences economic struggles. Average credit scores are 17 points lower than the national average, and bankruptcy rates are one of the highest in the nation.
- Average number of bankruptcy filings per consumer: 0.10
- Average overall debt: $86,964
- Average FICO® Score: 693
9. Arkansas
While Arkansas has seen an increase in personal credit scores in recent years, the average credit score in the state is still below the national average of 710. Yet bankruptcy rates are high in this state, which has the fifth highest level of poverty in the United States, with 16% of the population living in poverty.
- Average number of bankruptcy filings per consumer: 0.10
- Average overall debt: $69,309
- Average FICO® Score: 694
10. Indiana
This Midwest state boasts average credit scores higher than the national average of 710, but personal income ranks 34th in the nation as of 2020. Its bankruptcy rates put it in the top 10, coming out to approximately 10 bankruptcies per 100 residents.
- Average number of bankruptcy filings per consumer: 0.10
- Average overall debt: $73,817
- Average FICO® Score: 712
Bankruptcy Hits the South Hard
Among the 10 states with the most bankruptcy filings, more than half are located in the South (Alabama, Arkansas, Georgia, Kentucky, Mississippi and Tennessee). Southern states also suffer from the highest rates of poverty in the country, which could play a part in the higher bankruptcy rates seen there.
Higher Debt Doesn't Always Mean More Bankruptcies
Our data found that a higher debt load doesn't necessarily translate to higher bankruptcy rates. Actually, the average debt in the top 10 bankruptcy states is lower than in states with fewer bankruptcy filings.
In fact, some states with the highest average debt loads had the lowest number of bankruptcy filings. For example, the area with the highest overall debt is Washington, D.C., with $158,771 per person on average—but its bankruptcy rate is third lowest, at just 0.03. Debt loads are also high in California, Hawaii, Massachusetts and Washington, while their bankruptcy filing rates are much lower than what's seen in the top 10 states. This could be because they are areas with a high cost of living, where homes and goods cost more—but salaries are also higher.
Bankruptcy Is a Drag on Credit
What is more connected to bankruptcy rates is credit scores. In states with high bankruptcy rates, average FICO Scores are lower. For example, in the top three states with the most bankruptcy filings, credit scores average 691, 702 and 681 (Alabama, Kentucky and Mississippi, respectively).
This isn't a surprise given that filing for bankruptcy significantly damages credit scores for seven or 10 years, depending on the type of bankruptcy. It's also a reminder of the importance of maintaining good credit and avoiding bankruptcy if at all possible.