Although people in the Volunteer State have filed for bankruptcy in record numbers in recent years, Tennessee is first among states for the number of residents who try to make good on their debts with court-approved payment plans.

Local officials say that is an underreported statistic showing that extreme financial hardship does not necessarily mean debtors want to walk away from their responsibilities.

"Lil' ol' Tennessee pays out more money to creditors than people in states like California," said Kenneth Still, who since 1968 has headed the Chapter 13 program of U.S. Bankruptcy Court in Chattanooga. The program allows people to pay creditors over time and still keep assets such as houses and cars.

Of the 63,000 pending Chapter 13 cases in Tennessee as of Sept. 30, 2008, people collectively repaid $558 million to creditors, records from the Office of the U.S. Trustee show. That was the most repaid in any state in the nation. Texas was second with $528 million paid, and Georgia followed with $412 million.

The U.S. Trustee's Office oversees the operations of U.S. Bankruptcy Court here.

Tennessee also had the highest percentage of people filing under Chapter 13 as opposed to Chapter 7, which allows people to liquidate their assets and basically walk away from debt.

In calendar year 2008, 56 percent of the 47,000 people who filed personal bankruptcy cases in Tennessee opted for repayment plans under Chapter 13, records show.

Only about 19 percent of the 125,000 people who filed for personal bankruptcy in California did so under Chapter 13. California debtors repaid about $212 million in fiscal 2008.

The factors driving bankruptcy trends among states vary greatly. State laws on how U.S. bankruptcy codes are administered can affect whether a debtor chooses Chapter 13 or Chapter 7, court officials say.

But officials here agree that Tennessee's strong trend toward repayment is unique.

Chattanooga bankruptcy attorney Kenneth Rannick said he is "astounded" by the number of clients who have tried every other option to pay down debt before deciding to go into bankruptcy.

"There's a moral component" to the decision to file under Chapter 13 in the South, Mr. Rannick said. "People (here) feel extensive guilt or shame when they can't pay their debts. They want to do what is right."

Angela Flanagan, 31, said she tried going to family members, credit counselors -- anyone -- to avoid bankruptcy in the face of $20,000 in credit card debt.

She thought bankruptcy would be the worst possible option until she learned that Chapter 13 could help her keep her house and still try to pay back creditors.

"I didn't want to turn 40 some day and know that I couldn't pay anyone back," Ms. Flanagan said.

The Tennessee judiciary also historically has supported Chapter 13 laws, Mr. Still said, when other attorneys and judges across the country treated it as "too much work" for debts that seemed "piddly and not worth their time."

Chapter 13 filings usually involve an incredible amount of paperwork and the coordination of several parties, Mr. Still said, and they can take five years to complete. The Chapter 7 or "liquidation" option can take as little as three months.

"In other words, it was easier to tell people to throw in the towel," Mr. Still said.

But former Chattanooga mayor and U.S. Bankruptcy Judge Ralph Kelley turned such thinking around in the 1970s by insisting that his colleagues honor the Chapter 13 bankruptcy code, Mr. Still said.

The result is an aggressive Chapter 13 program administered from Chattanooga that is recognized nationally, several local bankruptcy attorneys said.

"I think our Chapter 13 program is one of the best in the country," said Kimberly Swafford, a trial attorney with the office of the U.S. Trustee.

"(Judge Kelley) really instilled in attorneys here that if their clients could pay the money back, they needed to be in Chapter 13."


The following states lead the nation in repayments to creditors under Chapter 13 bankruptcy plans:

* Tennessee: $558 million

* Texas: $528 million

* Georgia: $412 million

* Ohio: $385 million

* Michigan: $358

Source: U.S. Trustee's Office, U.S. Department of Justice