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Household borrowing after personal bankruptcy

  • Song Han
  • Geng Li
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A large literature has examined factors leading to filing for personal bankruptcy, but little is known about household borrowing after bankruptcy. Using data from the Survey of Consumer Finances, we find that relative to comparable nonfilers, bankruptcy filers generally have more limited access to unsecured credit but borrow more secured debt post bankruptcy, and they pay higher interest rates on all types of debt. We also find that credit access and borrowing costs improve as more time passed since filing. However, filers experience renewed debt payment difficulties and accumulate less wealth, even many years after filing, suggesting that for many bankrupt households, debt discharges fail to generate an effective fresh start as intended by the law. Our estimate also provides empirical guidance for calibrating the equilibrium models of household credit.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2009-17.

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Date of creation: 2009
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Handle: RePEc:fip:fedgfe:2009-17
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  1. Igor Livshits & James MacGee & Michele Tertilt, 2003. "Consumer bankruptcy: a fresh start," Working Papers 617, Federal Reserve Bank of Minneapolis.
  2. White, M.J., 1998. "Why Don't More Households File for Bankruptcy?," Papers 98-03, Michigan - Center for Research on Economic & Social Theory.
  3. 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, 01.
  4. Song Han & Wenli Li, 2004. "Fresh start or head start? The effect of filing for personal bankruptcy on the labor supply," Working Papers 04-5, Federal Reserve Bank of Philadelphia.
  5. Igor Livshits & James MacGee & Michele Tertilt, 2006. "Accounting for the Rise in Consumer Bankruptcies," University of Western Ontario, Economic Policy Research Institute Working Papers 20066, University of Western Ontario, Economic Policy Research Institute.
  6. Hülya Eraslan & Wenli Li & Pierre-Daniel Sarte, 2007. "The anatomy of U.S. personal bankruptcy under Chapter 13," Working Papers 07-31, Federal Reserve Bank of Philadelphia.
  7. Larry H. Filer II & Jonathan D. Fisher, 2005. "The Consumption Effects Associated with Filing for Personal Bankruptcy," Southern Economic Journal, Southern Economic Association, vol. 71(4), pages 837-854, April.
  8. White, Michelle J, 1998. "Why Don't More Households File for Bankruptcy?," Journal of Law, Economics and Organization, Oxford University Press, vol. 14(2), pages 205-31, October.
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  14. David Laibson & Andrea Repetto & Jeremy Tobacman, 2000. "A Debt Puzzle," NBER Working Papers 7879, National Bureau of Economic Research, Inc.
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  18. Scott Fay & Erik Hurst & Michelle J. White, 2002. "The Household Bankruptcy Decision," American Economic Review, American Economic Association, vol. 92(3), pages 706-718, June.
  19. Ian Domowitz & Robert L. Sartain, 1999. "Determinants of the Consumer Bankruptcy Decision," Journal of Finance, American Finance Association, vol. 54(1), pages 403-420, 02.
  20. Sarah W. Carroll & Wenli Li, 2008. "The homeownership experience of households in bankruptcy," Working Papers 08-14, Federal Reserve Bank of Philadelphia.
  21. Michelle J. White, 2007. "Bankruptcy Reform and Credit Cards," NBER Working Papers 13265, National Bureau of Economic Research, Inc.
  22. Filer, Larry & Fisher, Jonathan D., 2007. "Do liquidity constraints generate excess sensitivity in consumption? New evidence from a sample of post-bankruptcy households," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 790-805, December.
  23. Kartik Athreya, 2005. "Equilibrium models of personal bankruptcy : a survey," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 73-98.
  24. Kartik Athreya & Nicole B. Simpson, 2004. "Unsecured debt with public insurance : from bad to worse," Working Paper 03-14, Federal Reserve Bank of Richmond.
  25. David K. Musto, 2004. "What Happens When Information Leaves a Market? Evidence from Postbankruptcy Consumers," The Journal of Business, University of Chicago Press, vol. 77(4), pages 725-748, October.
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