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Personal-bankruptcy cycles


  • Garrett, Thomas A.
  • Wall, Howard J.


This paper estimates the dynamics of the personal-bankruptcy rate over the business cycle by exploiting large cross-state variation. We find that bankruptcy rates are significantly above trend during a recession and rise as a recession persists. After a recession ends, there is a hangover whereby bankruptcy rates begin to fall but remain above trend for several more quarters. Recovery periods see a strong bounce-back effect with bankruptcy rates significantly below trend for several quarters. Despite the significant increases in bankruptcies during recessions, the largest contributor to rising bankruptcies during these periods has tended to be the longstanding upward trend.

Suggested Citation

  • Garrett, Thomas A. & Wall, Howard J., 2010. "Personal-bankruptcy cycles," MPRA Paper 42740, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:42740

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    References listed on IDEAS

    1. Reint Gropp & John Karl Scholz & Michelle J. White, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 217-251.
    2. Igor Livshits & James MacGee & Michèle Tertilt, 2010. "Accounting for the Rise in Consumer Bankruptcies," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 165-193, April.
    3. Owyang, Michael T. & Piger, Jeremy & Wall, Howard J., 2008. "A state-level analysis of the Great Moderation," Regional Science and Urban Economics, Elsevier, vol. 38(6), pages 578-589, November.
    4. Richard Thalheimer & Mukhtar M. Ali, 2004. "The Relationship of Pari-mutuel Wagering and Casino Gaming to Personal Bankruptcy," Contemporary Economic Policy, Western Economic Association International, vol. 22(3), pages 420-432, July.
    5. Jeremy Piger & James Morley & Chang-Jin Kim, 2005. "Nonlinearity and the permanent effects of recessions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 291-309.
    6. Michelle J. White, 2007. "Bankruptcy Reform and Credit Cards," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 175-200, Fall.
    7. 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.
    8. Jonathan D. Fisher, 2005. "The Effect Of Unemployment Benefits, Welfare Benefits, And Other Income On Personal Bankruptcy," Contemporary Economic Policy, Western Economic Association International, vol. 23(4), pages 483-492, October.
    9. Jon P. Nelson, 1999. "Consumer Bankruptcy And Chapter Choice: State Panel Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 17(4), pages 552-566, October.
    10. Garrett, Thomas A. & Nichols, Mark W., 2008. "Do casinos export bankruptcy?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(4), pages 1481-1494, August.
    11. Michael T. Owyang & Jeremy Piger & Howard J. Wall, 2005. "Business Cycle Phases in U.S. States," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 604-616, November.
    12. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    13. John M. Barron & Michael E. Staten & Stephanie M. Wilshusen, 2002. "The Impact Of Casino Gambling On Personal Bankruptcy Filing Rates," Contemporary Economic Policy, Western Economic Association International, vol. 20(4), pages 440-455, October.
    14. A. Rampini, Adriano, 2005. "Default and aggregate income," Journal of Economic Theory, Elsevier, vol. 122(2), pages 225-253, June.
    15. Michelle J. White, 2007. "Bankruptcy Reform and Credit Cards," NBER Working Papers 13265, National Bureau of Economic Research, Inc.
    16. Donald P. Morgan & Benjamin Iverson & Matthew Botsch, 2008. "Seismic effects of the bankruptcy reform," Staff Reports 358, Federal Reserve Bank of New York.
    17. Ian Domowitz & Robert L. Sartain, 1999. "Determinants of the Consumer Bankruptcy Decision," Journal of Finance, American Finance Association, vol. 54(1), pages 403-420, February.
    18. Thomas A. Garrett, 2007. "The rise in personal bankruptcies: the Eighth Federal Reserve District and beyond," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 15-38.
    19. Theodore M. Crone & Alan Clayton-Matthews, 2005. "Consistent Economic Indexes for the 50 States," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 593-603, November.
    20. Lars Lefgren & Frank McIntyre, 2009. "Explaining the Puzzle of Cross-State Differences in Bankruptcy Rates," Journal of Law and Economics, University of Chicago Press, vol. 52(2), pages 367-393, May.
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    Cited by:

    1. Igor Livshits, 2015. "Recent Developments In Consumer Credit And Default Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 594-613, September.

    More about this item


    Personal Bankruptcy; Recessions;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance


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