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The Political Economy of Property Exemption Laws

  • Hynes, Richard M
  • Malani, Anup
  • Posner, Eric A

Exemption laws enable people who default on loans to protect certain assets from liquidation. Every state has its own set of exemption laws, and they vary widely. The 1978 federal bankruptcy law contains a set of national exemptions, which debtors in bankruptcy are permitted to use instead of their state's exemptions unless the state has formally "opted out" of the federal system. We contend that states' decisions to opt out shed light on their exemption levels. We find that states are more likely to opt out if their state exemption is lower than the federal exemption and that states are more likely to opt out if they also have a high bankruptcy filing rate and transfer little money to the poor. These latter findings suggest that studies that examine the impact of exemptions on, for example, the bankruptcy rate should not treat exemption levels as exogenous variables.

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File URL: http://dx.doi.org/10.1086/386276
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Article provided by University of Chicago Press in its journal Journal of Law and Economics.

Volume (Year): 47 (2004)
Issue (Month): 1 (April)
Pages: 19-43

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Handle: RePEc:ucp:jlawec:y:2004:v:47:i:1:p:19-43
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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  1. 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.
  2. Richard Hynes & Eric A. Posner, 2002. "The Law and Economics of Consumer Finance," American Law and Economics Review, Oxford University Press, vol. 4(1), pages 168-207, January.
  3. 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.
  4. Peterson, Richard L. & Aoki, Kiyomi, 1984. "Bankruptcy filings before and after implementation of the bankruptcy reform law," Journal of Economics and Business, Elsevier, vol. 36(1), pages 95-105, February.
  5. Brinig, Margaret F & Buckley, F H, 1996. "The Market for Deadbeats," The Journal of Legal Studies, University of Chicago Press, vol. 25(1), pages 201-32, January.
  6. Berkowitz, Jeremy & Hynes, Richard, 1999. "Bankruptcy Exemptions and the Market for Mortgage Loans," Journal of Law and Economics, University of Chicago Press, vol. 42(2), pages 809-30, October.
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