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