JEFFERSON CITY - Missouri has made it to the top of the list -- but for a ranking about which Missourians might not be very proud.
A recent report by the MSN News Web site said the state ranks first in the country for the number of per capita bankruptcy filings in 2002.
Declaring Missouri the "bankruptcy capital of America," the article used statistics from the American Bankruptcy Institute and the U.S. Census to calculate the average number of people filing for Chapter 7 bankruptcy protection in the 50 states. Missouri and four other Midwestern states made the list's top ten.
Bankruptcy Institute officials, however, said the report doesn't accurately depict the state's bankruptcy status because it excludes Chapter 13 filings.
Chapter 7 protection, or "liquidation bankruptcy," cancels most debts, with some exceptions, in exchange for adbicating property not covered by the state's exemption laws. Chapter 13 allows consumers to reorganize their finances and pay a part of what they owe in a graduated repayment plan.
Creighton University law professor Marianne Culhane, a resident scholar with the Institute, said one in 73 Missouri households filed for Chapter 7 or Chapter 13 protection last year, which actually places the state somewhere in the middle of national rankings on consumer insolvencies.
"It's still an indication that you had a lot of people filing and should be a cause for concern," she said.
Culhane said more research is needed to determine why some states are outpacing others in the number of personal bankruptcies. The struggling economy combined with high amounts of consumer debt is being blamed for the trend.
Vicki Jacobsen, vice president of the nonprofit Consumer Credit Counseling Service of St. Louis, said the period before the country's economic downturn, with its low interest rates and relaxed borrowing guidlines, lulled people into borrowing more than they could afford.
"People were encouraged to refinance and get home equity loans to pay off their credit card debt," she said. "What they did instead was put their homes in a pawn shop."
Jacobsen speculates most people didn't anticipate how sudden job loss, or in some cases being underinsured for medical care, would radically change their financial welfare.
She said her organization and 30 affiliates in four other states handle thousands of calls for debt assistance each year. The St. Louis organization is the oldest accredited debt counseling service in Missouri, established in 1971.
Consumer credit counseling, and sometimes debt consolidation, is usually the first recommended step for individuals before choosing bankruptcy.
Unfortunately, where most legitimate debt counselors can usually negotiate reasonable payment plans with creditors, other obligations like mortgages and home equity loans are more difficult to resolve.
Jacobsen said her agency investigates options to determine how to work with lenders before delinquent home mortgages go into forclosure, although it sometimes depends on how far along the delinquency is.
"But if the debt is secured, like a home equity loan, or the amount of debt is so great that a payment plan won't work, we suggest that our clients seek legal advice," she said.
Considering the limits Missouri's bankruptcy guidelines place on the amount of property and assets sheilded from creditors -- only $8,000 in real estate is exempt, for example -- the number of people filing is an indicator that some consumers have reached the end of their rope.
"We don't think people are trying to get out of paying their debts by filing bankruptcy," said Ray McCarty, vice president of finance with the Missouri Chamber of Commerce. "This is a real problem caused by a downturn economy and job loss."
McCarty said the Chamber sees the issue as an opportunity to push their agenda with legislators, particularly in the area of providing incentives for employers to do business in the state and address unemployment insurance reform.