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How Does Bankruptcy Law Impact the Elderly's Business and Housing Decisions?

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  • Nadia Greenhalgh-Stanley
  • Shawn Rohlin

Abstract

The elderly are the population most likely to file for bankruptcy, with filings increasing by 150 percent from 1991 to 2007. This is likely because they live with relatively flat incomes and high medical expenses, and their retirement and housing assets are typically exempt from bankruptcy filings. In addition, nine states adopted higher asset exemptions specifically for the elderly. Using the Health and Retirement Study and recent state-by-time variation in homestead exemptions, we are the first to test whether the benefits of partial wealth insurance or the cost of supply-side credit constraints are predominant for the elderly. Using pooled cross-sectional analysis, we find that an increase in a state's homestead exemption increases the elderly's home equity and business ownership; however, the credit constraint is dominant in unlimited-exemption states, which decreases home and business ownership. Panel analysis reveals that an increase in the homestead exemption positively affects home ownership rates and home equity.

Suggested Citation

  • Nadia Greenhalgh-Stanley & Shawn Rohlin, 2013. "How Does Bankruptcy Law Impact the Elderly's Business and Housing Decisions?," Journal of Law and Economics, University of Chicago Press, vol. 56(2), pages 417-451.
  • Handle: RePEc:ucp:jlawec:doi:10.1086/670911
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    References listed on IDEAS

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    1. Reint Gropp & John Karl Scholz & Michelle J. White, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 217-251.
    2. Corradin, Stefano & Gropp, Reint & Huizinga, Harry & Laeven, Luc, 2010. "Who Invests in Home Equity to Exempt Wealth from Bankruptcy?," CEPR Discussion Papers 8097, C.E.P.R. Discussion Papers.
    3. Jeremy Berkowitz & Michelle J. White, 2004. "Bankruptcy and Small Firms' Access to Credit," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 69-84, Spring.
    4. 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.
    5. Wenli Li & Michelle J. White & Ning Zhu, 2011. "Did Bankruptcy Reform Cause Mortgage Defaults to Rise?," American Economic Journal: Economic Policy, American Economic Association, vol. 3(4), pages 123-147, November.
    6. 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 543-567, October.
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    Cited by:

    1. Eric Helland & Anupam B. Jena & Dan P. Ly & Seth A. Seabury, 2016. "Self-insuring against Liability Risk: Evidence from Physician Home Values in States with Unlimited Homestead Exemptions," NBER Working Papers 22031, National Bureau of Economic Research, Inc.

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