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An Anatomy of U.S. Personal Bankruptcy under Chapter 13

Author

Listed:
  • Eraslan, Hulya

    (Rice University)

  • Kosar, Gizem

    (Johns Hopkins University)

  • Li, Weli

    (Federal Reserve Bank of Philadelphia)

  • Sarte, Pierre-Daniel

    (Federal Reserve Bank of Richmond)

Abstract

We compile a novel dataset from bankruptcy court dockets recorded in Delaware between 2001 and 2002. We use this data to estimate a structural model of Chapter 13 bankruptcy. This allows us to quantify how key debtor characteristics, including monthly housing expenses, whether they are experiencing bankruptcy for the first time, their past due secured debt at the time of filing, and income in excess of that required for basic maintenance, affect the distribution of creditor recovery rates. The analysis further reveals that changes in debtors' conditions during bankruptcy play a nontrivial role in governing Chapter 13 outcomes, including their ability to obtain a financial fresh start. Our model predicts that the more stringent provisions of Chapter 13 recently adopted, in particular those that force subsets of debtors to file for long-term plans, do not materially raise creditor recovery rates. This finding also arises in the context of alternative policy experiments that require bankruptcy plans to meet stricter standards in order to be confirmed by the court.

Suggested Citation

  • Eraslan, Hulya & Kosar, Gizem & Li, Weli & Sarte, Pierre-Daniel, 2014. "An Anatomy of U.S. Personal Bankruptcy under Chapter 13," Working Papers 14-030, Rice University, Department of Economics.
    • Handle: RePEc:ecl:riceco:14-030
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    File URL: http://economics.rice.edu/rise/working-papers/anatomy-us-personal-bankruptcy-under-chapter-13
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    Cited by:

    1. Daphne Chen & Jake Zhao, 2017. "The Impact of Personal Bankruptcy on Labor Supply Decisions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 40-61, October.
    2. Igor Livshits, 2015. "Recent Developments In Consumer Credit And Default Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 594-613, September.
    3. Albanesi, Stefania & Nosal, Jaromir, 2015. "Insolvency After the 2005 Bankruptcy Reform," CEPR Discussion Papers 10533, C.E.P.R. Discussion Papers.
    4. Michelle J. White & Ning Zhu, 2010. "Saving Your Home in Chapter 13 Bankruptcy," The Journal of Legal Studies, University of Chicago Press, vol. 39(1), pages 33-61, January.
    5. Pattison, Nathaniel & Millimet, Daniel L., 2023. "A Tale of Two Bankruptcies: Geographic Differences in Bankruptcy Chapter Choice," IZA Discussion Papers 16105, IZA Network @ LISER.
    6. Song Han & Geng Li, 2011. "Household Borrowing after Personal Bankruptcy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 491-517, March.
    7. Sarah W. Carroll & Wenli Li, 2008. "The homeownership experience of households in bankruptcy," Working Papers 08-14, Federal Reserve Bank of Philadelphia.
    8. Wenli Li & Michelle J. White, 2009. "Mortgage Default, Foreclosure, and Bankruptcy," NBER Working Papers 15472, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law

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