Personal Bankruptcy Protection and Household Debt

Meta Brown, Rajashri Chakrabarti and Felipe Severino ()
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Felipe Severino: https://www.tuck.dartmouth.edu/faculty/faculty-directory/felipe-severino

No 1099, Staff Reports from Federal Reserve Bank of New York

Abstract: Increasing personal bankruptcy protection raises consumers’ desire to borrow and lenders’ cost of extending credit; the impact on equilibrium borrowing is ambiguous. Using bankruptcy protection changes between 1999 and 2005 across U.S. states, we find that borrowers respond to greater protection by increasing their unsecured debt. Border county estimates suggest that local economic conditions do not drive these results. Borrowers pay more for protection through higher interest rates, yet delinquency is unaffected. Remarkably, our results indicate that rising borrower demand outstripped decreasing supply. Increased protections did not reduce the aggregate level of household debt but affected the composition of borrowing.

Keywords: bankruptcy; debt; credit cards; delinquency (search for similar items in EconPapers)
JEL-codes: D14 D18 G33 H81 (search for similar items in EconPapers)
Pages: 61
Date: 2024-04-01
New Economics Papers: this item is included in nep-ban
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DOI: 10.59576/sr.1099

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