The Regulation of Non-Judicial Debt Collection and the Consumer's Choice Among Repayment, Bankruptcy and Informal Bankruptcy
Richard M. Hynes
University of Virginia School of Law
Amanda E. Dawsey
University of Montana - School of Business Administration - Department of Economics
Lawrence M. Ausubel
University of Maryland - Department of Economics
October 12, 2009
Virginia Law and Economics Research Paper No. 2009-13
This article measures the impact of state laws on defaulting borrowers. Prior literature has assessed the impact of laws that limit the enforcement of judgments on bankruptcy filings. However, (1) the majority of defaulting consumers do not file for bankruptcy, and (2) most debt collection takes place outside of the courtroom. Federal law prohibits collection techniques that are designed to harass or that are deemed abusive, but it exempts creditors who originated the loan or purchased the loan before default. About half of the states have enacted statutes that grant consumers a private right of action against these creditors. This article finds that states with anti-harassment statutes have lower bankruptcy filing rates, but borrowers living in these states are more likely to default without filing for bankruptcy. Our results suggest that these (or related) laws may reduce creditors’ ability to pressure debtors to repay.
Number of Pages in PDF File: 31working papers series
Date posted: October 15, 2009
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