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Personal Bankruptcy: Reconciling Adverse Events and Strategic Filing Hypotheses Using Heterogeneity in Filing Types

Author

Listed:
  • Li Gan

    (Department of Economics, Texas A&M University)

  • Tarun Sabarwal

    (Department of Economics, University of Kansas)

  • Shuoxun Zhang

    (Research Institute of Economics and Management, Southwestern University of Finance and Economics, Chengdu, China)

Abstract

Personal bankruptcies have continued to rise even after passage of a comprehensive reform designed to curb strategic use of bankruptcy. We formalize a distinction between strategic filing and adverse events filing by testing whether consumers manipulate their debt and filing decision or not. Test results are consistent with the adverse events hypothesis and are replicated using both PSID and SCF data. Extending the analysis to allow for both types, there is evidence of heterogeneity in filing types, consistent with both hypotheses. On average, approximately 16 percent of households are more likely to behave as strategic types and 84 percent as adverse events types.

Suggested Citation

  • Li Gan & Tarun Sabarwal & Shuoxun Zhang, 2012. "Personal Bankruptcy: Reconciling Adverse Events and Strategic Filing Hypotheses Using Heterogeneity in Filing Types," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201239, University of Kansas, Department of Economics, revised Oct 2012.
    • Handle: RePEc:kan:wpaper:201239
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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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