Advanced Search
MyIDEAS: Login to save this paper or follow this series

The macroeconomics of U.S. consumer bankruptcy choice : chapter 7 or chapter 13?

Contents:

Author Info

  • Wenli Li
  • Pierre-Daniel G. Sarte

Abstract

Because of the recent surge in U.S. personal defaults, Congress is currently debating bankruptcy reform legislation requiring a means test for Chapter 7 filers. This paper explores the effects of such a reform in a model where, in contrast to previous work, bankruptcy options and production are explicitly taken into account. Our findings indicate that means testing would not improve upon current bankruptcy provisions and, at best, leaves aggregate filings, output, and welfare unchanged. Put simply,given already existing provisions, the introduction of an efficient means test would not bind. However, we do find that a tightening of existing bankruptcy laws, in the form of lower Chapter 7 asset exemptions, can be welfare improving. Contrary to previous studies, the analysis also suggests that eliminating bankruptcy entirely would cause significant declines in both output and welfare.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.richmondfed.org/publications/research/working_papers/2002/wp_02-1.cfm
Download Restriction: no

File URL: http://www.richmondfed.org/publications/research/working_papers/2002/pdf/wp02-1.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 02-01.

as in new window
Length:
Date of creation: 2002
Date of revision:
Handle: RePEc:fip:fedrwp:02-01

Contact details of provider:
Web page: http://www.richmondfed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.richmondfed.org/publications/

Related research

Keywords: Bankruptcy;

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Wang, H.J. & White, M., 1998. "An Optimal Personal Bankruptcy Procedure and Proposed Reform," Papers 98-07, Michigan - Center for Research on Economic & Social Theory.
  2. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
  3. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  4. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-42, February.
  5. Igor Livshits & James MacGee & Michele Tertilt, 2003. "Consumer bankruptcy: a fresh start," Working Papers 617, Federal Reserve Bank of Minneapolis.
  6. Wenli Li, 2001. "To forgive or not to forgive : an analysis of U.S. consumer bankruptcy choices," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 1-22.
  7. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers 07-16, Federal Reserve Bank of Philadelphia.
  8. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  9. 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.
  10. Per Krusell & Anthony A. Smith, Jr., . "Income and Wealth Heterogeneity in the Macroeconomy," GSIA Working Papers 1997-37, Carnegie Mellon University, Tepper School of Business.
  11. Jon P. Nelson, 1999. "Consumer Bankruptcy And Chapter Choice: State Panel Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 17(4), pages 552-566, October.
  12. 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.
  13. Vincenzo Quadrini, 1997. "Entrepreneurship, saving and social mobility," Discussion Paper / Institute for Empirical Macroeconomics 116, Federal Reserve Bank of Minneapolis.
  14. S. Rao Aiyagari, 1994. "Macroeconomics with frictions," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 24-40.
  15. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  16. Andreas Lehnert & Dean M. Maki, 2002. "Consumption, debt and portfolio choice: testing the effect of bankruptcy law," Finance and Economics Discussion Series 2002-14, Board of Governors of the Federal Reserve System (U.S.).
  17. S. Rao Aiyagari & Ellen R. McGrattan, 1997. "The optimum quantity of debt," Staff Report 203, Federal Reserve Bank of Minneapolis.
  18. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
  19. 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.
  20. White, M.J., 1998. "Why Don't More Households File for Bankruptcy?," Papers 98-03, Michigan - Center for Research on Economic & Social Theory.
  21. 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.
  22. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  23. Buckley, F H & Brinig, Margaret F, 1998. "The Bankruptcy Puzzle," The Journal of Legal Studies, University of Chicago Press, vol. 27(1), pages 187-207, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Simon Janssen & Uschi Backes-Gellner, 2008. "Skill obsolescence, vintage effects and changing tasks," Economics of Education Working Paper Series 0063, University of Zurich, Institute for Strategy and Business Economics (ISU).
  2. Mateos-Planas, Xavier, 2009. "A model of credit limits and bankruptcy with applications to welfare and indebtedness," Discussion Paper Series In Economics And Econometrics 0910, Economics Division, School of Social Sciences, University of Southampton.
  3. N. Narajabad, Borghan, 2010. "Information Technology and the Rise of Household Bankruptcy," MPRA Paper 21058, University Library of Munich, Germany.
  4. Marina Pavan, 2003. "Consumer Durables and Risky Borrowing: the Effects of Bankruptcy Protection," Boston College Working Papers in Economics 573, Boston College Department of Economics, revised 01 May 2005.
  5. Kartik Athreya, 2005. "Equilibrium models of personal bankruptcy : a survey," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 73-98.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedrwp:02-01. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (William Perkins).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.