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Mormons Go Bankrupt

posted by Elizabeth Warren

For the past several years, Utah has had the dubious distinction of having one of the highest bankruptcy filing rates in the country.  In 2004, for example, nearly one in every 41 families in Utah filed for bankruptcy--about twice the national average.

This is especially surprising because people in Utah have higher rates of education.  Moreover, the Mormon church preaches the importance meeting financial responsibilities and warns against debt.  So why are so many people in Utah in financial trouble?  The practices of Mormons have come under fire:  early marriage, large families, and the effects of tithing. But a new study says no:  Mormons in Utah are slightly less likely to file for bankruptcy than non-Mormons.  The researchers (and my former students), Jim Wright and Zeke Johnson, say the problem lies elsewhere.  In a stroke of good timing, the Urban Institute just released a study that adds more heft to the Wright/Johnson analysis.

Wright and Johnson discovered that what distinguished Utah debtors was the higher-than-average proportion who identify job problems and medical debts as triggering their bankruptcies.  Wright and Johnson then tie those problems into a ragged social safety net (weaker health care coverage) and economic troubles (employment problems).  Those challenges leave all Utah families--Mormon and non-Mormon alike--vulnerable for financial collapse when trouble strikes. 

So what is it?  The Urban Institute just released its report on the state of the government work support program, and Utah came out at Number 50--dead last.  The programs include help for parents to obtain jobs, medicaid, child care subsidies, food stamps and EIT credits.  The Deserest News characterized Utah as the "stingiest" in aiding the poor.  Correlation doesn't prove causation, of course, but it provides a good place to start looking--particularly in light of the Wright/Johnson data.

The high bankruptcy filing rate in Utah is has an O'Henry political twist.  During the debates over the credit industry's 2005 amendments to the bankruptcy laws, one of the most aggressive supporters of the credit industry bill was Orin Hatch, the senior Republican senator from Utah.  He helped moved the bill forward, as he denounced the deadbeats who filed for bankruptcy.  Many people pointed out that his constituents had one of the highest filing rates in the country, a point Hatch never acknowledged as he continued to rail against the debtors who were abusing their creditors.

Are Mormons different?  Not according to Wright and Johnson's research.  Like families everywhere, they struggle with the economic fallout from medical difficulties and job loss. And when they can't get good jobs or decent health care coverage, their problems multiply, making bankruptcy a more likely alternative. 


That's "O. Henry," just to clarify.

This appears to be the reverse of the "Congress/my rep" dichotomy: support being "tough" on debtors, even as you become one.

Notwithstanding that I frequently disagree with Professor Warren on various matters, I completely agree with every sentence of this post.

I agree with much of this post, and in no way am I insinuating that this is a leading cause, but I do believe it contributes: many or most debt settlement companies do not operate in Utah because of state laws prohibiting them. This is one outlet before bankruptcy that is not available to many consumers in Utah.

Zangrilli's comment above prompts me to ask a larger question: why are filings still down? Certainly people's economic situation hasn't changed dramatically. Nor is it likely that people just decided to repay their creditors now -- all the evidence regarding foreclosure rates, credit card default rates, and such gives the lie to that explanation. So where are these people going? Are they going underground? Or are they going to these debt settlement companies that have now popped up like mushrooms all over the country, advertising on TV and such? Is there a way to get at this empirically? Who might do that? Is it being done now?

Here's another hypothesis worth testing. Anecdotally, many young LDS are business entrepreneurs, often sole proprietors (e.g. network marketing for NuSkin, Amway, Arbonne; door-to-door sales; real estate investors, etc). Some of these bankruptcies that are reported as personal may be the result of small business failures that are just misreported. Just a thought perhaps for a future study.

Another thought: there are many LDS outside of Utah in sizeable numbers in other communities (e.g. large numbers in AZ, NV, ID), often UT LDS in economic diaspora. Given that UT in general seems to be a bad place for bankruptcy, it could be any interesting study to compare what LDS bankruptcy behavior looks like in these other jurisdictions.

When 10% of your gross income is skimmed right off the top (like the Mafia used to do in its Casinos) that leaves that much less money to meet a families temporal obligations. And since "Keeping up with the Jonses" is alive and well (especially in SLC's southern and southwestern suburbs), we find more and more families sinking. There is no two-income trap here since there is often only one income.

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