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Consumer Bankruptcy And Chapter Choice: State Panel Evidence

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  • JON P. NELSON

Abstract

"Between 1985 and 1996, the number of personal bankruptcy cases filed annually in the United States rose from 341,000 to 1.1 million, and the rate of bankruptcies per 100,000 adults increased from 203 to 596. By state, bankruptcy rates vary from a low of 147 in Hawaii to a high of 956 in Tennessee. A controversial aspect of bankruptcy policy is the discharge of debts permitted under Chapter 7, in contrast to Chapter 13, where the debtor agrees to repay all or a portion of unsecured debt over a 3-5-year period. This paper examines empirically the determinants of the frequency with which individuals choose Chapter 13 relative to Chapter 7 (chapter choice). The panel data set is a cross section of states and the District of Columbia for the 8-year period from fiscal year 1989 to 1996. The empirical model and policy application focus on the importance of several laws for bankruptcy decisions, and legal variables are included for each state's Chapter 7 homestead exemption, personal property exemptions, and garnishment laws. This study shows that both homestead exemption laws and garnishment laws are statistically significant for bankruptcy choices. Although the marginal effect of the homestead exemption is small, there is a large range under current laws, suggesting that changes in this exemption are important for bankruptcy policy." ("JEL" K1, K4, D2, D9) Copyright 1999 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 17 (1999)
Issue (Month): 4 (October)
Pages: 552-566

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Handle: RePEc:bla:coecpo:v:17:y:1999:i:4:p:552-566

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Cited by:
  1. Thomas A. Garrett & Howard J. Wall, 2010. "Personal-bankruptcy cycles," Working Papers, Federal Reserve Bank of St. Louis 2010-010, Federal Reserve Bank of St. Louis.
  2. Jochen Bigus & Eva-Maria Steiger, 2006. "When it pays to be honest: How a variable period of good conduct can improve incentives in personal bankruptcy proceedings," European Journal of Law and Economics, Springer, Springer, vol. 22(3), pages 233-253, November.
  3. Gross, Tal & Notowidigdo, Matthew J., 2011. "Health insurance and the consumer bankruptcy decision: Evidence from expansions of Medicaid," Journal of Public Economics, Elsevier, Elsevier, vol. 95(7-8), pages 767-778, August.
  4. Wenli Li & Pierre-Daniel Sarte, 2003. "The macroeconomics of U.S. consumer bankruptcy choice: Chapter 7 or Chapter 13?," Working Papers 03-14, Federal Reserve Bank of Philadelphia.
  5. Adkisson, Richard V. & Saucedo, Eduardo, 2012. "Emulation and state-by-state variations in bankruptcy rates," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 41(4), pages 400-407.
  6. Ronel Elul & Narayanan Subramanian, 2002. "Forum-Shopping and Personal Bankruptcy," Journal of Financial Services Research, Springer, Springer, vol. 21(3), pages 233-255, June.
  7. Wenli Li, 2001. "To forgive or not to forgive : an analysis of U.S. consumer bankruptcy choices," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Spr, pages 1-22.
  8. Malhotra, Rashmi & Malhotra, D. K., 2002. "Differentiating between good credits and bad credits using neuro-fuzzy systems," European Journal of Operational Research, Elsevier, Elsevier, vol. 136(1), pages 190-211, January.
  9. Li, Wenli & Sarte, Pierre-Daniel, 2006. "U.S. consumer bankruptcy choice: The importance of general equilibrium effects," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(3), pages 613-631, April.
  10. 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, Western Economic Association International, vol. 20(4), pages 440-455, October.
  11. Agarwal, Sumit & Liu, Chunlin & Mielnicki, Lawrence, 2003. "Exemption laws and consumer delinquency and bankruptcy behavior: an empirical analysis of credit card data," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 43(2), pages 273-289.
  12. Thomas A. Garrett, 2007. "The rise in personal bankruptcies: the Eighth Federal Reserve District and beyond," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Jan, pages 15-38.
  13. Jon Nelson, 2000. "Consumer Bankruptcies and the Bankruptcy Reform Act: A Time-Series Intervention Analysis, 1960–1997," Journal of Financial Services Research, Springer, Springer, vol. 17(2), pages 181-200, August.
  14. Andreas Lehnert & Dean M. Maki, 2002. "Consumption, debt and portfolio choice: testing the effect of bankruptcy law," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2002-14, Board of Governors of the Federal Reserve System (U.S.).

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