IDEAS home Printed from https://ideas.repec.org/p/fip/fedpwp/13-24.html
   My bibliography  Save this paper

Credit access and credit performance after consumer bankruptcy filing: new evidence

Author

Listed:
  • Wenli Li
  • Julapa Jagtiani

Abstract

This paper uses a unique data set to shed new light on the credit availability and credit performance of consumer bankruptcy filers. In particular, our data allow us to distinguish between Chapter 7 and Chapter 13 bankruptcy filings, to observe changes in credit demand and supply explicitly, to differentiate existing and new credit accounts, and to observe the performance of each credit account directly. The paper has four main findings. First, despite speedy recovery in their risk scores after bankruptcy filing, most filers have much reduced access to credit in terms of credit limits, and the impact seems to be long lasting. Second, the reduction in credit access stems mainly from the supply side as consumer inquiries recover significantly after the filing, while credit limits remain low. Third, lenders do not treat Chapter 13 filers more favorably than Chapter 7 filers. In fact, Chapter 13 filers are much less likely to receive new credit cards than Chapter 7 filers even after controlling for borrower characteristics and local economic environment. Finally, we find that Chapter 13 filers perform more poorly than Chapter 7 filers (after the filing) on all credit products (credit card debt, auto loans, and first mortgages). Our results, in contrast to prior studies, thus suggest that the current bankruptcy system does not appear to provide much relief to bankruptcy filers.

Suggested Citation

  • Wenli Li & Julapa Jagtiani, 2013. "Credit access and credit performance after consumer bankruptcy filing: new evidence," Working Papers 13-24, Federal Reserve Bank of Philadelphia, revised 2013.
  • Handle: RePEc:fip:fedpwp:13-24
    as

    Download full text from publisher

    File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers/2013/wp13-24.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Judit Montoriol-Garriga & Ethan Cohen-Cole & Burcu Duygan-Bump, 2009. "Forgive and forget: who gets credit after bankruptcy and why?," Supervisory Research and Analysis Working Papers QAU09-2, Federal Reserve Bank of Boston, revised 2009.
    2. 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.
    3. Julapa Jagtiani & William W. Lang, 2010. "Strategic default on first and second lien mortgages during the financial crisis," Working Papers 11-3, Federal Reserve Bank of Philadelphia, revised 2010.
    4. Song Han & Geng Li, 2011. "Household Borrowing after Personal Bankruptcy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 491-517, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Financial crises; Bankruptcy; Credit;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedpwp:13-24. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Beth Paul). General contact details of provider: http://edirc.repec.org/data/frbphus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.