Bankruptcies are rising at a record pace across the country as the economy continues to plummet and homeowners’ equity stake in their dwellings plummets with it. According to a new report by the always excellent Bob Lawless at Credit Slips, bankruptcy filings across all judicial districts increased 27.7 percent in May and June 2008 as compared to the same time period last year.
Yet only 26 of the 90 U.S. districts were above the national average — and Minnesota is one of them. Bankruptcy filings in Minnesota for May and June swelled 29.7 percent, putting Minnesota in the top 30 percent of US states in the rate of bankruptcy increases. In fact, when the current data is combined with a similar report Lawless did in March, that puts Minnesota in the same category as California, Florida, Arizona, and Nevada as areas with the biggest increases in bankruptcy filings.
What sets Minnesota apart from those other states is that Minnesota wasn’t hit nearly as hard by the foreclosure crisis. Combined, those states have an average of 35 foreclosures per 1000 housing units, while Minnesota has 21. What’s more, home prices in those regions have dropped 20 and 30 percent (and in some serious cases, as much as 60 percent) as the market continues to free fall. Minnesota’s home prices have dropped on average 15 percent so far.
So why is Minnesota struggling with increasing bankruptcy rates? Minnesota’s unemployment rate is 5.3 percent, a tinge below the national average of 5.5 percent. However many rural Minnesota counties aren’t faring as well as their big-city counterparts where the majority of the state’s population lives. Cottonwood County has an unemployment rate of 10.1 percent, after years of hovering at around 4 percent. And Chisago, Cass, Carlton, Beltrami, Hubbard, Koochiching, LeSuer, Marshall, McCloed, Mille Lacs, Pine, Red Lake, St. Louis, Wadena, and Watonwan all have an unemployment rate above 6 percent. And these percentages include only those still filing for unemployment, not the so called “discouraged workers” whose unemployment benefits have run out and who may or may not still be seeking jobs.
Lawless doesn’t outline the specific causes, but he does speculate about the results of increasing bankruptcy filings in Minnesota and elsewhere: “I wonder whether these different economic outcomes will affect the political support or opposition for foreclosure and credit market reform,” he writes. “I wonder what effect these variations might have on the coming presidential elections. To the extent bankruptcy filing rates measure the economic well-being of the area, I wonder whether voters in these states will perceive economic times to be as tough as voters in other areas. Notably, the oft-mentioned swing states of Pennsylvania and Ohio have had some of the lowest rates of increase in bankruptcy filing rates.”
Minnesota, also considered a swing state by some, wasn’t quite as lucky. Pennsylvania and Ohio saw an approximately 8 percent increase in bankruptcy filings to Minnesota’s nearly 30 percent.