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Household borrowing after personal bankruptcy

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  • Song Han
  • Geng Li
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Abstract

A large literature has examined factors leading to filing for personal bankruptcy, but little is known about household borrowing after bankruptcy. Using data from the Survey of Consumer Finances, we find that relative to comparable nonfilers, bankruptcy filers generally have more limited access to unsecured credit but borrow more secured debt post bankruptcy, and they pay higher interest rates on all types of debt. We also find that credit access and borrowing costs improve as more time passed since filing. However, filers experience renewed debt payment difficulties and accumulate less wealth, even many years after filing, suggesting that for many bankrupt households, debt discharges fail to generate an effective fresh start as intended by the law. Our estimate also provides empirical guidance for calibrating the equilibrium models of household credit.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2009-17.

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Date of creation: 2009
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Handle: RePEc:fip:fedgfe:2009-17

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Keywords: Bankruptcy ; Loans; Personal;

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References

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  1. Song Han & Wenli Li, 2004. "Fresh start or head start? The effect of filing for personal bankruptcy on the labor supply," Finance and Economics Discussion Series 2004-28, Board of Governors of the Federal Reserve System (U.S.).
  2. Igor Livshits & James MacGee & Michele Tertilt, 2006. "Accounting for the Rise in Consumer Bankruptcies," Discussion Papers 06-001, Stanford Institute for Economic Policy Research.
  3. David Laibson & Andrea Repetto & Jeremy Tobacman, 2000. "A Debt Puzzle," NBER Working Papers 7879, National Bureau of Economic Research, Inc.
  4. 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.
  5. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, vol. 75(6), pages 1525-1589, November.
  6. Michelle J. White, 2007. "Bankruptcy Reform and Credit Cards," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 175-200, Fall.
  7. Hülya Eraslan & Wenli Li & Pierre-Daniel G. Sarte, 2007. "The anatomy of U.S. personal bankruptcy under Chapter 13," Working Paper 07-05, Federal Reserve Bank of Richmond.
  8. Igor Livshits & James MacGee & Michele Tertilt, 2005. "Consumer Bankruptcy: A Fresh Start," Discussion Papers 04-011, Stanford Institute for Economic Policy Research.
  9. 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.
  10. 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.
  11. 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.
  12. White, M.J., 1998. "Why Don't More Households File for Bankruptcy?," Papers 98-03, Michigan - Center for Research on Economic & Social Theory.
  13. Reint Gropp & John Karl Scholz & Michelle White, 1996. "Personal Bankruptcy and Credit Supply and Demand," NBER Working Papers 5653, National Bureau of Economic Research, Inc.
  14. Larry H. Filer II & Jonathan D. Fisher, 2005. "The Consumption Effects Associated with Filing for Personal Bankruptcy," Southern Economic Journal, Southern Economic Association, vol. 71(4), pages 837-854, April.
  15. Sarah W. Carroll & Wenli Li, 2008. "The homeownership experience of households in bankruptcy," Working Papers 08-14, Federal Reserve Bank of Philadelphia.
  16. Kartik Athreya, 2004. "Shame as it ever was : stigma and personal bankruptcy," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 1-19.
  17. Michelle J. White, 2007. "Bankruptcy Reform and Credit Cards," NBER Working Papers 13265, National Bureau of Economic Research, Inc.
  18. Michelle J. White & Ning Zhu, 2008. "Saving Your Home in Chapter 13 Bankruptcy," NBER Working Papers 14179, National Bureau of Economic Research, Inc.
  19. Kartik Athreya & Nicole B. Simpson, 2004. "Unsecured debt with public insurance : from bad to worse," Working Paper 03-14, Federal Reserve Bank of Richmond.
  20. Kartik Athreya, 2005. "Equilibrium models of personal bankruptcy : a survey," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 73-98.
  21. Astrid Dick & Andreas Lehnert, 2007. "Personal bankruptcy and credit market competition," Staff Reports 272, Federal Reserve Bank of New York.
  22. David K. Musto, 2004. "What Happens When Information Leaves a Market? Evidence from Postbankruptcy Consumers," The Journal of Business, University of Chicago Press, vol. 77(4), pages 725-748, October.
  23. 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.
  24. Filer, Larry & Fisher, Jonathan D., 2007. "Do liquidity constraints generate excess sensitivity in consumption? New evidence from a sample of post-bankruptcy households," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 790-805, December.
  25. White, Michelle J, 1998. "Why Don't More Households File for Bankruptcy?," Journal of Law, Economics and Organization, Oxford University Press, vol. 14(2), pages 205-31, October.
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Citations

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Cited by:
  1. Kanz, Martin, 2012. "What does debt relief do for development ? evidence from India's bailout program for highly-indebted rural households," Policy Research Working Paper Series 6258, The World Bank.
  2. Bonfim, Diana & Dias, Daniel A. & Richmond, Christine, 2012. "What happens after corporate default? Stylized facts on access to credit," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2007-2025.
  3. Wenli Li, 2013. "The economics of student loan borrowing and repayment," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 1-10.
  4. 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.
  5. Song Han & Benjamin J. Keys & Geng Li, 2011. "Credit supply to personal bankruptcy filers: evidence from credit card mailings," Finance and Economics Discussion Series 2011-29, Board of Governors of the Federal Reserve System (U.S.).
  6. Meta Brown & Andrew Haughwout & Donghoon Lee & Wilbert van der Klaauw, 2011. "Do we know what we owe? A comparison of borrower- and lender-reported consumer debt," Staff Reports 523, Federal Reserve Bank of New York.
  7. Aloisio Araujo & Bruno Funchal, 2013. "How much should debtors be punished in case of default?," Fucape Working Papers 41, Fucape Business School.
  8. Ethan Cohen-Cole & Burcu Duygan-Bump & Judit Montoriol-Garriga, 2009. "Forgive and forget: who gets credit after bankruptcy and why?," Risk and Policy Analysis Unit Working Paper QAU09-2, Federal Reserve Bank of Boston.
  9. Kartik B. Athreya & Xuan S. Tam & Eric R. Young, 2011. "Loan guarantees for consumer credit markets," Working Paper 11-06, Federal Reserve Bank of Richmond.
  10. Tobias Adrian & Daniel Covitz & Nellie J. Liang, 2013. "Financial stability monitoring," Staff Reports 601, Federal Reserve Bank of New York.
  11. Diana Bonfim & Daniel Dias & Christine Richmond, 2011. "What Happens After Default? Stylized Facts on Access to Credit," Working Papers w201101, Banco de Portugal, Economics and Research Department.
  12. Benjamin J. Keys, 2010. "The credit market consequences of job displacement," Finance and Economics Discussion Series 2010-24, Board of Governors of the Federal Reserve System (U.S.).
  13. Julapa Jagtiani & Wenli Li, 2013. "Credit access and credit performance after consumer bankruptcy filing: new evidence," Working Papers 13-24, Federal Reserve Bank of Philadelphia.

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