(FORTUNE Magazine) – Another million Americans filed for bankruptcy last year, joining nine million fellow bankrupts from the past decade, along with an even larger cast of debtors who for one reason or another just say no to their bills. A million phone accounts with $1 billion past due have been written off by the long-distance carriers. Meanwhile, the banks had to write off a $17 billion bag of uncollectible debts their credit card customers left them holding.

"With one in 100 households in bankruptcy, people are more comfortable with the idea than they used to be," laments Sam Gerdano of the American Bankruptcy Institute. "They shop at bankrupt retailers, travel on bankrupt airlines, and some of them live in bankrupt Orange County, so why not join the crowd?"

This Woodstock of insolvents caught the banks and the credit card companies completely off guard. They hired a research firm, SMR of Budd Lake, New Jersey, to look into it. Even the researchers were surprised by the findings. SMR discovered there are hot spots for bankruptcies, just as there are for certain infectious diseases. Moreover, these hot spots don't occur in the predictable places--cities or states with severe unemployment and the population in deep hock. In fact, McAllen, Texas, with 18% unemployment, and Hawaii, with unusually high consumer indebtedness, both had relatively few bankruptcies per capita. According to SMR's president, Stuart Feldstein, states with the most bankruptcies per capita (Tennessee leads the list) share three basic characteristics--a high divorce rate, lax rules on auto insurance, and a large population that lacks health insurance. Feldstein throws in a fourth characteristic--an above average number of lawyers advertising their services--as a maybe. In a typical case, a strapped consumer faced with a sudden and costly catastrophe (divorce, sickness, or being sued for damages) decides to live off Visa and MasterCard until the problem can be solved or until she wins the lottery. If the lottery doesn't come through and she has maxed out on her cards, she can either file for Chapter 7 or simply ignore the unpaid bills. (It could be a "he" we're talking about, but the Wise Guy strives to be sexually correct.)

The way the newspapers cover this subject, you'd think the banks were to blame for sending out the cards in the first place, and those greedy bastards deserved to be stiffed. The Wise Guy, being a shareholder in several banks, thinks the bankers are getting a bad rap; this is another example of blaming the victim. As the old saying goes, "credit cards don't ruin credit; people do."

Contrary to popular belief, bankers in general would like to avoid being stiffed by their cardholders, but according to Feldstein, two factors are working against them: (1) the difficulty of verifying a cardholder's income and (2) the proliferation of the no-fee card. "If people had to pay an annual fee, they'd have gotten rid of a lot of cards years ago," he says. As it is, the cards in their drawers become an irresistible source of cash in a pinch.

The real losers in the delinquency epidemic are the nondelinquents who run up big credit card tabs and dutifully pay the punitive interests rates. While banks no doubt deserve some criticism for jacking up rates, credit quality is the main culprit. Feldstein figures two percentage points are tacked on to make up for the bankruptcy write-offs, and another four points to cover the charges people simply refuse to pay. Otherwise, credit card rates might drop to the same level as home equity rates, where the annual write-off is a paltry $8.5 million.

There's a movement afoot to reform the bankruptcy laws, with various parties giving their 2 cents. As it now stands, people who file for Chapter 7 routinely walk out of court with their debts wiped clean and no obligation to repay; a person with a $1 million annual income can have his debts erased as easily as a person with zero income. So far, debtors' prisons aren't on the reformers' agenda, but the Wise Guy could make a case for it, especially for serial credit card abusers. I'm thinking along the lines of a privatized pokey owned by Citicorp or MBNA, where chronic deadbeats could work off their debts answering phones for the customer service department.