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Consumption, Debt, and Portfolio Choice: Testing the Effects of Bankruptcy Law

In: Household Credit Usage

Author

Listed:
  • Andreas Lehnert
  • Dean Maki

Abstract

In the United States, consumer bankruptcy (Chapter 7 and Chapter 13) is designed to provide debtors a fresh start. Broadly speaking, after a household successfully files a bankruptcy petition, its unsecured debts are erased, but it must forfeit any assets above an exemption level determined by law. Laws regulating bankruptcy are a complex mix of state and federal rules. While the specific legal details are beyond the scope of this essay, in general, state laws set the exemption levels above which households forfeit assets; these range from exemptions as low as $75 to more than $100,000 (or, indeed, potentially unlimited levels).1

Suggested Citation

  • Andreas Lehnert & Dean Maki, 2007. "Consumption, Debt, and Portfolio Choice: Testing the Effects of Bankruptcy Law," Palgrave Macmillan Books, in: Sumit Agarwal & Brent W. Ambrose (ed.), Household Credit Usage, chapter 0, pages 55-76, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-60891-7_4
    DOI: 10.1057/9780230608917_4
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    Citations

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    Cited by:

    1. Sumit Agarwal & Jessica Pan & Wenlan Qian, 2020. "Age of Decision: Pension Savings Withdrawal and Consumption and Debt Response," Management Science, INFORMS, vol. 66(1), pages 43-69, January.
    2. Pattison, Nathaniel, 2020. "Consumption smoothing and debtor protections," Journal of Public Economics, Elsevier, vol. 192(C).
    3. Dal Borgo, Mariela, 2021. "Do bankruptcy protection levels affect households' demand for stocks?," CAGE Online Working Paper Series 564, Competitive Advantage in the Global Economy (CAGE).
    4. Jing Jian Xiao & Chunsheng Tao, 2020. "Consumer finance/household finance: the definition and scope," China Finance Review International, Emerald Group Publishing Limited, vol. 11(1), pages 1-25, June.
    5. Duca, John V. & Kumar, Anil, 2014. "Financial literacy and mortgage equity withdrawals," Journal of Urban Economics, Elsevier, vol. 80(C), pages 62-75.

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