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Personal Liabilities and Bankruptcy Reform: An International Perspective

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  • Michelle Alexopoulos
  • Ian Domowitz

Abstract

Recent changes in bankruptcy law pertaining to personal liabilities are widespread. Broad trends include eligibility of personal liabilities in voluntary bankruptcy proceedings, strict insolvency requirements, and debt discharge. Moral considerations are even codified within the law, restricting discharge possibilities. There is movement towards repayment of debt out of income, as opposed to simple liquidation of assets. Associated with this trend are pre-court negotiations and vagaries in the judicial process, with respect to enforcement of objective criteria concerning the amount of debt discharged in bankruptcy. We document these changes across Europe and North America, and investigate their theoretical implications with respect to policy initiatives and intent. The focus is on interest rates, employment, and the probability of bankruptcy. Employment rises as bankruptcy law becomes more stringent. Employment effects are complex, however, leading to the possibility that domestic and international interest rates may rise as the law becomes stricter. It is not always clear that a tightening of bankruptcy possibilities decreases the incidence of bankruptcy, except in the stark case of no debt discharge. Flexibility in the judicial process with respect to application of objective standards for debt repayment is generally detrimental, suggesting strict bankruptcy rules as opposed to court or pre-court discretion. Firm ownership structures matter with respect to effects stemming from bankruptcy law changes. Proposed international agreements, such as the European Union Insolvency Convention, may lower international interest rates, but do not necessarily imply a decrease in the incidence of bankruptcy.

Suggested Citation

  • Michelle Alexopoulos & Ian Domowitz, "undated". "Personal Liabilities and Bankruptcy Reform: An International Perspective," IPR working papers 98-8, Institute for Policy Resarch at Northwestern University.
  • Handle: RePEc:wop:nwuipr:98-8
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    Cited by:

    1. Mette Ejrnæs & Stefan Hochguertel, 2008. "Entrepreneurial Moral Hazard in Income Insurance: Empirical Evidence from a Large Administrative Sample," CAM Working Papers 2008-02, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    2. Lee, Seung-Hyun & Yamakawa, Yasuhiro & Peng, Mike W. & Barney, Jay B., 2011. "How do bankruptcy laws affect entrepreneurship development around the world?," Journal of Business Venturing, Elsevier, vol. 26(5), pages 505-520, September.
    3. Igor Livshits & James MacGee & Michèle Tertilt, 2007. "Consumer Bankruptcy: A Fresh Start," American Economic Review, American Economic Association, vol. 97(1), pages 402-418, March.
    4. Ronel Elul & Narayanan Subramanian, 2002. "Forum-Shopping and Personal Bankruptcy," Journal of Financial Services Research, Springer;Western Finance Association, vol. 21(3), pages 233-255, June.
    5. Michelle J. White, 2005. "Economic Analysis of Corporate and Personal Bankruptcy Law," NBER Working Papers 11536, National Bureau of Economic Research, Inc.
    6. Bertazzi, Ilaria, 2014. "A challenge to normativity and economic theory, the case ofdebtors movements," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201405, University of Turin.
    7. repec:spr:manint:v:52:y:2012:i:1:d:10.1007_s11575-011-0112-1 is not listed on IDEAS
    8. Andreas Lehnert & Dean M. Maki, 2002. "Consumption, debt and portfolio choice: testing the effect of bankruptcy law," Finance and Economics Discussion Series 2002-14, Board of Governors of the Federal Reserve System (U.S.).

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