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The anatomy of U.S. personal bankruptcy under Chapter 13

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  • Hülya Eraslan
  • Wenli Li
  • Pierre-Daniel Sarte

Abstract

By compiling a novel data set from bankruptcy court dockets recorded in Delaware between 2001 and 2002, the authors build and estimate a structural model of Chapter 13 bankruptcy. This allows them to quantify how key debtor characteristics, including whether they are experiencing bankruptcy for the first time, their past-due secured debt at the time of filing, and income in excess of that required for basic maintenance, affect the distribution of creditor recovery rates. The analysis further reveals that changes in debtors' conditions during bankruptcy play a nontrivial role in governing Chapter 13 outcomes, including their ability to obtain a financial fresh start. The authors' model then predicts that the more stringent provisions of Chapter 13 recently adopted, in particular those that force subsets of debtors to file for long-term plans, do not materially raise creditor recovery rates but make discharge less likely for that subset of debtors. This finding also arises in the context of alternative policy experiments that require bankruptcy plans to meet stricter standards in order to be confirmed by the court. ; Also issued as Payment Cards Center Discussion Paper No. 07-16

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 07-31.

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Date of creation: 2007
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Handle: RePEc:fip:fedpwp:07-31

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Keywords: Bankruptcy;

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References

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  1. Gropp, Reint & Scholz, John Karl & White, Michelle J, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 217-51, February.
  2. Ronel Elul & Narayanan Subramanian, 2002. "Forum-Shopping and Personal Bankruptcy," Journal of Financial Services Research, Springer, Springer, vol. 21(3), pages 233-255, June.
  3. Buckley, F H & Brinig, Margaret F, 1998. "The Bankruptcy Puzzle," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 27(1), pages 187-207, January.
  4. Scott Fay & Erik Hurst & Michelle J. White, 2002. "The Household Bankruptcy Decision," American Economic Review, American Economic Association, American Economic Association, vol. 92(3), pages 706-718, June.
  5. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers, Federal Reserve Bank of Philadelphia 07-16, Federal Reserve Bank of Philadelphia.
  6. Ian Domowitz & Robert L. Sartain, 1999. "Determinants of the Consumer Bankruptcy Decision," Journal of Finance, American Finance Association, American Finance Association, vol. 54(1), pages 403-420, 02.
  7. Igor Livshits & James MacGee & Mich�le Tertilt, 2007. "Consumer Bankruptcy: A Fresh Start," American Economic Review, American Economic Association, American Economic Association, vol. 97(1), pages 402-418, March.
  8. repec:att:wimass:9106 is not listed on IDEAS
  9. Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, Elsevier, vol. 156(1), pages 38-67, May.
  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. Keane, Michael P., 2010. "Structural vs. atheoretic approaches to econometrics," Journal of Econometrics, Elsevier, Elsevier, vol. 156(1), pages 3-20, May.
  12. Charles GRANT, 2003. "Evidence on the Effect of US Consumer Bankruptcy Exemptions," Economics Working Papers, European University Institute ECO2003/19, European University Institute.
  13. Zvi Eckstein & Kenneth I. Wolpin, 1989. "The Specification and Estimation of Dynamic Stochastic Discrete Choice Models: A Survey," Journal of Human Resources, University of Wisconsin Press, University of Wisconsin Press, vol. 24(4), pages 562-598.
  14. Larry H. Filer II & Jonathan D. Fisher, 2005. "The Consumption Effects Associated with Filing for Personal Bankruptcy," Southern Economic Journal, Southern Economic Association, Southern Economic Association, vol. 71(4), pages 837-854, April.
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Cited by:
  1. Song Han & Geng Li, 2011. "Household Borrowing after Personal Bankruptcy," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 43, pages 491-517, 03.
  2. Michelle J. White & Ning Zhu, 2008. "Saving Your Home in Chapter 13 Bankruptcy," NBER Working Papers 14179, National Bureau of Economic Research, Inc.
  3. Sarah W. Carroll & Wenli Li, 2008. "The homeownership experience of households in bankruptcy," Working Papers, Federal Reserve Bank of Philadelphia 08-14, Federal Reserve Bank of Philadelphia.
  4. Wenli Li & Michelle J. White, 2009. "Mortgage Default, Foreclosure, and Bankruptcy," NBER Working Papers 15472, National Bureau of Economic Research, Inc.

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