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The Political Economy of Property Exemption Laws

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Author Info

  • Hynes, Richard M
  • Malani, Anup
  • Posner, Eric A

Abstract

Exemption laws enable people who default on loans to protect certain assets from liquidation. Every state has its own set of exemption laws, and they vary widely. The 1978 federal bankruptcy law contains a set of national exemptions, which debtors in bankruptcy are permitted to use instead of their state's exemptions unless the state has formally "opted out" of the federal system. We contend that states' decisions to opt out shed light on their exemption levels. We find that states are more likely to opt out if their state exemption is lower than the federal exemption and that states are more likely to opt out if they also have a high bankruptcy filing rate and transfer little money to the poor. These latter findings suggest that studies that examine the impact of exemptions on, for example, the bankruptcy rate should not treat exemption levels as exogenous variables.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Law and Economics.

Volume (Year): 47 (2004)
Issue (Month): 1 (April)
Pages: 19-43

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Handle: RePEc:ucp:jlawec:y:2004:v:47:i:1:p:19-43

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Web page: http://www.journals.uchicago.edu/JLE/

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Cited by:
  1. Kartik Athreya & Ahmet Akyol, 2009. "Credit and self-employment," Working Paper 09-05, Federal Reserve Bank of Richmond.
  2. Corradin, Stefano & Gropp, Reint & Huizinga, Harry & Laeven, Luc, 2013. "Who invests in home equity to exempt wealth from bankruptcy?," SAFE Working Paper Series 21, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
  3. Gross, Tal & Notowidigdo, Matthew J., 2011. "Health insurance and the consumer bankruptcy decision: Evidence from expansions of Medicaid," Journal of Public Economics, Elsevier, vol. 95(7), pages 767-778.
  4. Aloisio Araujo & Bruno Funchal, 2013. "How much should debtors be punished in case of default?," Fucape Working Papers 41, Fucape Business School.
  5. Hansen, Mary Eschelbach & Hansen, Bradley A., 2012. "Crisis and Bankruptcy: The Mediating Role of State Law, 1920–1932," The Journal of Economic History, Cambridge University Press, vol. 72(02), pages 448-468, June.
  6. Cerqueiro, G.M., 2009. "Information Asymmetries, Banking Markets, and Small Business Lending," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3529744, Tilburg University.
  7. Dilip Mookherjee & Ulf von Lilienfeld-Toal, 2011. "How Did the US Housing Slump Begin? The Role of the 2005 Bankruptcy Reform," Boston University - Department of Economics - Working Papers Series WP2011-033, Boston University - Department of Economics.
  8. Berger, Allen N. & Cerqueiro, Geraldo & Penas, María F., 2011. "Does debtor protection really protect debtors? Evidence from the small business credit market," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1843-1857, July.
  9. Michelle J. White, 2005. "Economic Analysis of Corporate and Personal Bankruptcy Law," NBER Working Papers 11536, National Bureau of Economic Research, Inc.
  10. Jeremy Berkowitz & Michelle J. White, 2002. "Bankruptcy and Small Firms' Access to Credit," NBER Working Papers 9010, National Bureau of Economic Research, Inc.
  11. Iftekhar Hasan & Haizhi Wang, 2008. "The US bankruptcy law and private equity financing: empirical evidence," Small Business Economics, Springer, vol. 31(1), pages 5-19, June.

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