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Who gets credit after bankruptcy and why? An information channel

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  • Cohen-Cole, Ethan
  • Duygan-Bump, Burcu
  • Montoriol-Garriga, Judit

Abstract

Conventional wisdom holds that individuals find it difficult to obtain new credit post-bankruptcy. Using credit bureau data, we test this hypothesis and show that more than 90% of bankrupt individuals receive credit shortly after filing. Individuals with good credit history prior to filing have reduced credit availability after bankruptcy while those with ex-ante low credit quality receive more credit. We show that credit supplied to low quality individuals is severely curtailed during the financial crisis. We also find that the default probability on new debt increases after bankruptcy, especially among individuals with high ex-ante credit score. These findings are consistent with an information channel, in which bankruptcy reveals new information about a borrower’s credit quality.

Suggested Citation

  • Cohen-Cole, Ethan & Duygan-Bump, Burcu & Montoriol-Garriga, Judit, 2013. "Who gets credit after bankruptcy and why? An information channel," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5101-5117.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5101-5117
    DOI: 10.1016/j.jbankfin.2013.07.036
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    References listed on IDEAS

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    Cited by:

    1. Lei Ding, 2016. "Borrower Credit Access And Credit Performance After Loan Modifications," Working Papers 16-26, Federal Reserve Bank of Philadelphia.
    2. Will Dobbie & Paul Goldsmith-Pinkham & Crystal S. Yang, 2017. "Consumer Bankruptcy and Financial Health," The Review of Economics and Statistics, MIT Press, vol. 99(5), pages 853-869, December.
    3. Danisewicz, Piotr & Elard, Ilaf, 2023. "The real effects of financial technology: Marketplace lending and personal bankruptcy," Journal of Banking & Finance, Elsevier, vol. 155(C).
    4. Herkenhoff, Kyle & Phillips, Gordon M. & Cohen-Cole, Ethan, 2021. "The impact of consumer credit access on self-employment and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 141(1), pages 345-371.
    5. Lei Ding, 2017. "Borrower credit access and credit performance after loan modifications," Empirical Economics, Springer, vol. 52(3), pages 977-1005, May.

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    More about this item

    Keywords

    Personal bankruptcy; Credit access; Information and lending; Consumer finance;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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