An Optimal Personal Bankruptcy Procedure and Proposed Reform
AbstractWe investigate a proposed reform of U.S. personal bankruptcy law which combines Chapters 7 and 13. The proposed reform obliges debtors in bankruptcy to use part of both their wealth and their future earnings to repay debt and therefore bases the obliga- tion to repay in bankruptcy on debtors' ability-to-pay. An important function of personal bankruptcy is to provide partial wealth insurance for risk averse debtors by discharg- ing some debt when debtors' ability to repay turns out to be low. However the current bankruptcy system encourages debtors to le for bankruptcy even when their ability to repay is high. The proposed reform maintains the insurance function of bankruptcy, but reduces debtors' incentive to take advantage of the system. Using simulation techniques, we show that the reform improves eciency relative to the current system.
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Bibliographic InfoPaper provided by Michigan - Center for Research on Economic & Social Theory in its series Papers with number 98-07.
Length: 30 pages
Date of creation: 1998
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Postal: UNIVERSITY OF MICHIGAN, DEPARTMENT OF ECONOMICS CENTER FOR RESEARCH ON ECONOMIC AND SOCIAL THEORY, ANN ARBOR MICHIGAN U.S.A.
BANKRUPTCY ; LAW;
Other versions of this item:
- Wang, Hung-Jen & White, Michelle J, 2000. "An Optimal Personal Bankruptcy Procedure and Proposed Reforms," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 255-86, January.
- K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
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