Bankruptcy Reform and Credit Cards
AbstractFrom 1980 to 2004, the number of personal bankruptcy filings in the United States increased more than five-fold, from 288,000 to 1.5 million per year. By 2004, more Americans were filing for bankruptcy each year than were graduating from college, getting divorced, or being diagnosed with cancer. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) became law. It made bankruptcy law much less debtor-friendly. Personal bankruptcy filings fell to 600,000 in 2006. This paper explores why personal bankruptcy rates rose, and will argue that the main reason is the growth of "revolving debt" -- mainly credit card debt. It explains how the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 altered the conditions of bankruptcy. Finally, this essay considers the balances that need to be struck in a bankruptcy system and how the U.S. bankruptcy system strikes these balances in comparison with other countries. I argue that a less debtor-friendly bankruptcy policy should be accompanied by changes in bank regulation and truth-in-lending rules, so that lenders have a greater chance of facing losses when they supply too much credit or charge excessively high interest rates and fees.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by American Economic Association in its journal Journal of Economic Perspectives.
Volume (Year): 21 (2007)
Issue (Month): 4 (Fall)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David B. Gross & Nicholas S. Souleles, 2001.
"Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data,"
NBER Working Papers
8314, National Bureau of Economic Research, Inc.
- David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints And Interest Rates Matter For Consumer Behavior? Evidence From Credit Card Data," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 149-185, February.
- Scott Fay & Erik Hurst & Michelle J. White, 2002. "The Household Bankruptcy Decision," American Economic Review, American Economic Association, vol. 92(3), pages 706-718, June.
- Gropp, Reint & Scholz, John Karl & White, Michelle J, 1997.
"Personal Bankruptcy and Credit Supply and Demand,"
The Quarterly Journal of Economics,
MIT Press, vol. 112(1), pages 217-51, February.
- Igor Livshits & James MacGee & Michele Tertilt, 2006.
"Accounting for the Rise in Consumer Bankruptcies,"
06-001, Stanford Institute for Economic Policy Research.
- Igor Livshits & James MacGee & Michèle Tertilt, 2007. "Accounting for the Rise in Consumer Bankruptcies," NBER Working Papers 13363, National Bureau of Economic Research, Inc.
- Igor Livshits & James MacGee & Michele Tertilt, 2006. "Accounting for the Rise in Consumer Bankruptcies," University of Western Ontario, Economic Policy Research Institute Working Papers 20066, University of Western Ontario, Economic Policy Research Institute.
- Lin, Emily Y. & White, Michelle J., 2001. "Bankruptcy and the Market for Mortgage and Home Improvement Loans," Journal of Urban Economics, Elsevier, vol. 50(1), pages 138-162, July.
- Posner, Eric A, 1995. "Contract Law in the Welfare State: A Defense of the Unconscionablility Doctrine, Usury Laws, and Related Limitations on the Freedom to Contract," The Journal of Legal Studies, University of Chicago Press, vol. 24(2), pages 283-319, June.
- Laibson, David, 1997.
"Golden Eggs and Hyperbolic Discounting,"
The Quarterly Journal of Economics,
MIT Press, vol. 112(2), pages 443-77, May.
- David Laibson & Andrea Repetto & Jeremy Tobacman, 2000.
"A Debt Puzzle,"
NBER Working Papers
7879, National Bureau of Economic Research, Inc.
- Ian Domowitz & Robert L. Sartain, 1999. "Determinants of the Consumer Bankruptcy Decision," Journal of Finance, American Finance Association, vol. 54(1), pages 403-420, 02.
- Wang, H.J. & White, M., 1998.
"An Optimal Personal Bankruptcy Procedure and Proposed Reform,"
98-07, Michigan - Center for Research on Economic & Social Theory.
- Wang, Hung-Jen & White, Michelle J, 2000. "An Optimal Personal Bankruptcy Procedure and Proposed Reforms," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 255-86, January.
- John M. Barron & Michael E. Staten & Stephanie M. Wilshusen, 2002. "The Impact Of Casino Gambling On Personal Bankruptcy Filing Rates," Contemporary Economic Policy, Western Economic Association International, vol. 20(4), pages 440-455, October.
- David B. Gross & Nicholas S. Souleles, 1999.
"An Empirical Analysis of Personal Bankruptcy and Delinquency,"
Center for Financial Institutions Working Papers
98-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
- David B. Gross, 2002. "An Empirical Analysis of Personal Bankruptcy and Delinquency," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 319-347, March.
- David B. Gross & Nicholas S. Souleles, 2001. "An Empirical Analysis of Personal Bankruptcy and Delinquency," NBER Working Papers 8409, National Bureau of Economic Research, Inc.
- Berkowitz, Jeremy & Hynes, Richard, 1999. "Bankruptcy Exemptions and the Market for Mortgage Loans," Journal of Law and Economics, University of Chicago Press, vol. 42(2), pages 809-30, October.
- Fan, Wei & White, Michelle J, 2003. "Personal Bankruptcy and the Level of Entrepreneurial Activity," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 543-67, October.
- Garrett, Thomas A. & Wall, Howard J., 2010.
42740, University Library of Munich, Germany.
- Daniel, Sanches, 2011. "A dynamic model of unsecured credit," Journal of Economic Theory, Elsevier, vol. 146(5), pages 1941-1964, September.
- Athreya, Kartik & Tam, Xuan S. & Young, Eric R., 2009. "Unsecured credit markets are not insurance markets," Journal of Monetary Economics, Elsevier, vol. 56(1), pages 83-103, January.
- Robert Scott, 2010. "Credit Card Ownership Among American High School Seniors: 1997–2008," Journal of Family and Economic Issues, Springer, vol. 31(2), pages 151-160, June.
- Charles Sprenger & Joanna Stavins, 2008. "Credit card debt and payment use," Working Papers 08-2, Federal Reserve Bank of Boston.
- Ciliberto, Federico & Schenone, Carola, 2012.
"Bankruptcy and product-market competition: Evidence from the airline industry,"
International Journal of Industrial Organization,
Elsevier, vol. 30(6), pages 564-577.
- Ciliberto, Federico & Schenone, Carola, 2010. "Bankruptcy and Product-Market Competition: Evidence from the Airline Industry," MPRA Paper 24914, University Library of Munich, Germany.
- Song Han & Geng Li, 2009.
"Household borrowing after personal bankruptcy,"
Finance and Economics Discussion Series
2009-17, Board of Governors of the Federal Reserve System (U.S.).
- Ethan Cohen-Cole, 2009. "The option value of consumer bankruptcy," Risk and Policy Analysis Unit Working Paper QAU09-1, Federal Reserve Bank of Boston.
- Michelle White & Wenli Li, 2011. "Residential Mortgage Default and Consumer Bankruptcy: Theory and Empirical Evidence," 2011 Meeting Papers 1038, Society for Economic Dynamics.
- Viktar Fedaseyeu, 2012. "Debt Collection Agencies and the Supply of Consumer Credit," Working Papers 442, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Wenli Li & Michelle J. White, 2009. "Mortgage Default, Foreclosure, and Bankruptcy," NBER Working Papers 15472, National Bureau of Economic Research, Inc.
- Leora Klapper, 2011. "Saving Viable Businesses : The Effect of Insolvency Reform," World Bank Other Operational Studies 11056, The World Bank.
- Borys Grochulski, 2008.
"Optimal personal bankruptcy design : A Mirrlees approach,"
08-05, Federal Reserve Bank of Richmond.
- Borys Grochulski, 2007. "Optimal Personal Bankruptcy Design: A Mirrlees Approach," 2007 Meeting Papers 1008, Society for Economic Dynamics.
- Paul Cavelaars & Joost Passenier, 2012. "Follow the money: what does the literature on banking tell prudential supervisors on bank business models?," DNB Working Papers 336, Netherlands Central Bank, Research Department.
- Lukasz A. Drozd & Ricardo Serrano-Padial, 2013. "Modeling the credit card revolution: the role of debt collection and informal bankruptcy," Working Papers 13-12, Federal Reserve Bank of Philadelphia.
- Ethan Cohen-Cole & Burcu Duygan-Bump, 2008. "Household bankruptcy decision: the role of social stigma vs. information sharing," Risk and Policy Analysis Unit Working Paper QAU08-6, Federal Reserve Bank of Boston.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.