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Incentives and Bankruptcy Chapter Choice: Evidence from the Reform Act of 1978


  • Domowitz, Ian
  • Sartain, Robert L


We ask whether new incentives embedded in a major legal change have their anticipated effect on personal bankruptcy chapter choice. The evidence is based on data at the level of the household shortly before and after enactment of the Bankruptcy Reform Act of 1978. Structural chapter choice models predict a substantial portion of the increase in the proportion of reorganizational filings. Statistical testing confirms a shift in behavior across legal regimes. The sources promoting the increased incidence of reorganizational filings traceable to the law lie in cost effects, changes in eligibility requirements across chapters, differences in categories of dischargeable debt, and increased equity protection. Legal shifts in incentives change behavior but do so substantively only when relatively large amounts of money are at stake. Copyright 1999 by the University of Chicago.

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  • Domowitz, Ian & Sartain, Robert L, 1999. "Incentives and Bankruptcy Chapter Choice: Evidence from the Reform Act of 1978," The Journal of Legal Studies, University of Chicago Press, vol. 28(2), pages 461-487, June.
  • Handle: RePEc:ucp:jlstud:v:28:y:1999:i:2:p:461-87

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    References listed on IDEAS

    1. Philippe Aghion & Oliver D. Hart & John Moore, 1994. "The Economics of Bankruptcy Reform," NBER Chapters,in: The Transition in Eastern Europe, Volume 2: Restructuring, pages 215-244 National Bureau of Economic Research, Inc.
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    8. Eberhart, Allan C & Moore, William T & Roenfeldt, Rodney L, 1990. " Security Pricing and Deviations from the Absolute Priority Rule in Bankruptcy Proceedings," Journal of Finance, American Finance Association, vol. 45(5), pages 1457-1469, December.
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    10. White, Michelle J, 1994. "Corporate Bankruptcy as a Filtering Device: Chapter 11 Reorganizations and Out-of-Court Debt Restructurings," Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(2), pages 268-295, October.
    11. White, Michelle J, 1989. "The Corporate Bankruptcy Decision," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 129-151, Spring.
    12. Franks, Julian R. & Torous, Walter N., 1994. "A comparison of financial recontracting in distressed exchanges and chapter 11 reorganizations," Journal of Financial Economics, Elsevier, vol. 35(3), pages 349-370, June.
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    Cited by:

    1. Edward J. Bird & Paul A. Hagstrom & Robert Wild & Janet A. Weiss, 1999. "Credit card debts of the poor: High and rising," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 18(1), pages 125-133.

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