in financially distressed farm states. All
of the Corn Belt states reported in-
creased personal bankruptcy levels
during this period, with filings up 45%
in Iowa and 22% in Missouri. In the
Plains states, North Dakota and Texas
reported increases above 30%, and
South Dakota, Kansas, and Oklahoma
showed gains above 20%. On the
other hand, more than half of the
northeastern states, for example, re-
ported increases of only about 10%.
Although not all of the increase in
personal bankruptcy filings in 1985
can be explained by the agricultural
slump, the disparity in bankruptcy
increases between farm and nonfarm
states indicates that personal bankrupt-
cy levels were dramatically affected by
a regional shock to the economy.
In 1986, a sudden plunge in the world
price of oil led to a recession in the Oil
Patch states, mainly in the Southwest
(Texas, Oklahoma, Louisiana, and
Arkansas), and the West (Alaska, Cali-
fornia, Wyoming, Arizona, and Colo-
rado) . Domestically, the spot price of
West Texas intermediate crude oil fell
from an average of $30 per barrel in
November 1985, to an average of $11
per barrel in July 1986. The plunge in
the price of oil had severe financial
consequences in the oil and gas indus-
tries, and in several petroleum-related
sectors. The number of new crude
petroleum and natural gas wells
drilled was almost halved between
1985 and 1986, while oil and gas ex-
traction output fell 13% during the
same period. Unemployment in the
mining sector and petroleum-related
industries rose sharply, as did unem-
ployment rates in the states with the
largest production of crude petroleum
and natural gas. In the affected states,
unemployment averaged over 8% in
the West and almost 10% in the South.
These unemployment rates were con-
siderably higher than the national rate
of 7% and the average rate of 5% in
the Northeast. Again, the states with
the highest unemployment rates also
recorded the largest increases in per-
sonal bankruptcies.
In 1986, personal bankruptcy filings
jumped 32% nationally, with a 39%
increase in the South and a 36% rise
in the West (see Figure 2). Moreover,
personal bankruptcies rose by more
than 50% in Alaska, Arizona, Colo-
rado, Texas, and Oklahoma, and by
more than 30% in California, Wyo-
ming, and Louisiana. Both the North-
east and the Midwest, on the other
hand, reported more moderate up-
swings in the number of filings in
1986, with increases of 14% and 24%,
respectively.
Such considerable disparity in the
magnitude of bankruptcy increases
among regions was mostly due to the
fact that the negative economic shock,
which contributed to the increase in
personal bankruptcies, was localized in
the Oil Patch states. One study indicat-
ed, however, that personal bankruptcies
continued to grow at the national level
even when five of the major oil-produc-
ing states were excluded from the calcu-
lations.2 One possible explanation for
this phenomenon is that although the
initial economic shock was confined to
the Oil Patch states, its financial conse-
quences were more widespread, as oth-
er petroleum-related sectors were affect-
ed by the oil slump. Moreover, the
unprecedented increase in consumer
debt during the 1980s made it more
difficult for those households affected
by the oil recession to deal with unex-
pected financial strain.
Because personal bankruptcy filings
sometimes respond to recessions with a
lag, economic downturns can affect
bankruptcy levels over extended periods
of time. When individuals are laid off,
they do not file for bankruptcy immedi-
ately. They first try to find new jobs,
migrate to economically healthier re-
gions, or borrow money from their
families and friends. Studies show that
approximately 80% of all bankrupt
individuals are employed when they file
for bankruptcy. However, their job
tenure is usually shorter than that of the
average population, and their salary
lower compared to other workers in the
same position. This suggests that unem-
ployment originally forced them to look
for another occupation—often a lower
paying job—before filing for bankrupt-
cy. Moreover, the fact that personal
bankruptcies sometimes respond to
economic downturns with a lag ex-
plains, in part, why personal bankrupt-
cies did not decline after 1986, although
the rate of increase slowed considerably
during the three years that followed.
1989-1990: the real estate slump
During the latter part of the 1980s,
changes in the number of personal
bankruptcy filings again varied consider-
ably among states. During the 1987-
1990 period, personal bankruptcies rose
at an average annual rate of 13% at the
national level (see Figure 2). Although
filings also rose at the regional level,
certain states reported smaller increases,
while other states reported declines.
The disparity can be explained by an-
other localized economic disturbance;