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Consumer Bankruptcy and Financial Health

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  • Will Dobbie
  • Paul Goldsmith-Pinkham
  • Crystal Yang

Abstract

This paper estimates the effect of Chapter 13 bankruptcy protection on post-filing financial outcomes using a new dataset linking bankruptcy filings to credit bureau records. Our empirical strategy uses the leniency of randomly-assigned judges as an instrument for Chapter 13 protection. Over the first five post-filing years, we find that Chapter 13 protection decreases an index measuring adverse financial events such as civil judgments and repossessions by 0.316 standard deviations, increases the probability of being a homeowner by 13.2 percentage points, and increases credit scores by 14.9 points. Chapter 13 protection has little impact on open unsecured debt, but decreases the amount of debt in collections by $1,315.

Suggested Citation

  • Will Dobbie & Paul Goldsmith-Pinkham & Crystal Yang, 2015. "Consumer Bankruptcy and Financial Health," NBER Working Papers 21032, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21032
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    Cited by:

    1. John Eric Humphries & Nicholas Mader & Daniel Tannenbaum & Winnie van Dijk, 2019. "Does Eviction Cause Poverty? Quasi-Experimental Evidence from Cook County, IL," CESifo Working Paper Series 7800, CESifo.
    2. Brown, James R. & Cookson, J. Anthony & Heimer, Rawley Z., 2019. "Growing up without finance," Journal of Financial Economics, Elsevier, vol. 134(3), pages 591-616.
    3. Kleiner, Kristoph & Stoffman, Noah & Yonker, Scott E., 2021. "Friends with bankruptcy protection benefits," Journal of Financial Economics, Elsevier, vol. 139(2), pages 578-605.
    4. Adrien Auclert & Will S. Dobbie & Paul Goldsmith-Pinkham, 2019. "Macroeconomic Effects of Debt Relief: Consumer Bankruptcy Protections in the Great Recession," NBER Working Papers 25685, National Bureau of Economic Research, Inc.
    5. Will Dobbie & Andres Liberman & Daniel Paravisini & Vikram Pathania, 2018. "Measuring Bias in Consumer Lending," Working Papers 623, Princeton University, Department of Economics, Industrial Relations Section..
    6. Albanesi, Stefania & Nosal, Jaromir, 2015. "Insolvency After the 2005 Bankruptcy Reform," CEPR Discussion Papers 10533, C.E.P.R. Discussion Papers.
    7. Henri Fraisse, 2017. "Households Debt Restructuring: The Re-default Effects of a Debt Suspension," Journal of Law, Economics, and Organization, Oxford University Press, vol. 33(4), pages 686-717.
    8. Marco Di Maggio & Ankit Kalda & Vincent Yao, 2019. "Second Chance: Life without Student Debt," NBER Working Papers 25810, National Bureau of Economic Research, Inc.
    9. Koudijs, Peter & Salisbury, Laura, 2020. "Limited liability and investment: Evidence from changes in marital property laws in the US South, 1840–1850," Journal of Financial Economics, Elsevier, vol. 138(1), pages 1-26.
    10. Will Dobbie & Paul Goldsmith-Pinkham & Neale Mahoney & Jae Song, 2016. "Bad credit, no problem? Credit and labor market consequences of bad credit reports," Staff Reports 795, Federal Reserve Bank of New York.
    11. Jason Allen & Kiana Basiri, 2016. "The Impact of Bankruptcy Reform on Insolvency Choice and Consumer Credit," Staff Working Papers 16-26, Bank of Canada.
    12. Brigham R. Frandsen & Lars J. Lefgren & Emily C. Leslie, 2019. "Judging Judge Fixed Effects," NBER Working Papers 25528, National Bureau of Economic Research, Inc.
    13. Will Dobbie & Paul Goldsmith‐Pinkham & Neale Mahoney & Jae Song, 2020. "Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports," Journal of Finance, American Finance Association, vol. 75(5), pages 2377-2419, October.
    14. Fu, Jonathan, 2020. "Ability or opportunity to act: What shapes financial well-being?," World Development, Elsevier, vol. 128(C).
    15. Will Dobbie & Jacob Goldin & Crystal Yang, 2016. "The Effects of Pre-Trial Detention on Conviction, Future Crime, and Employment: Evidence from Randomly Assigned Judges," Working Papers 601, Princeton University, Department of Economics, Industrial Relations Section..
    16. Pattison, Nathaniel, 2020. "Consumption smoothing and debtor protections," Journal of Public Economics, Elsevier, vol. 192(C).
    17. Will Dobbie & Jacob Goldin & Crystal Yang, 2016. "The Effects of Pre-Trial Detention on Conviction, Future Crime, and Employment: Evidence from Randomly Assigned Judges," NBER Working Papers 22511, National Bureau of Economic Research, Inc.
    18. Will Dobbie & Jae Song, 2016. "Debt Relief or Debt Restructuring? Evidence from an Experiment with Distressed Credit Card Borrowers," Working Papers 599, Princeton University, Department of Economics, Industrial Relations Section..
    19. Julia Fonseca & Katherine Strair & Basit Zafar, 2017. "Access to credit and financial health: evaluating the impact of debt collection," Staff Reports 814, Federal Reserve Bank of New York.
    20. Henri Fraisse, 2017. "Households Debt Restructuring: The Re-default Effects of a Debt Suspension," Journal of Law, Economics, and Organization, Oxford University Press, vol. 33(4), pages 686-717.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law

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