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The Causes of Household Bankruptcy: The Interaction of Income Shocks and Balance Sheets

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  • Vyacheslav Mikhed
  • Barry Scholnick

Abstract

We examine how household balance sheets and income statements interact to affect bankruptcy decisions following an exogenous income shock. For identification, we exploit government payments in one but not any other Canadian province that varied exogenously based on family size. Receiving a larger income shock from the payment (relative to household income) reduces the count of bankruptcies, with fewer remaining filers having higher net balance sheet benefits of bankruptcy (unsecured debt discharged minus liquidated assets forgone). Receiving an income shock thus causes households that would receive lower net balance sheet benefits under bankruptcy law to select out of bankruptcy.

Suggested Citation

  • Vyacheslav Mikhed & Barry Scholnick, 2016. "The Causes of Household Bankruptcy: The Interaction of Income Shocks and Balance Sheets," Working Papers 16-19, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:16-19
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Household Bankruptcy; Income Shocks; Balance Sheet;
    All these keywords.

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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