Till Debt Do Us Part? The Effects of Debt Relief on Household Stability

Abstract

We use a representative sample of individual credit bureau records to examine the impact of financial distress and debt relief on marital stability. Foreclosures increase marital dissolution, whereas Chapter 13 bankruptcies, which protect debtors from foreclosure, reduce it. These effects are separate from health or local economic shocks. We use post-disaster financial assistance programs and judicial district dismissal rates as instruments to isolate exogenous variation in foreclosure and Chapter 13 bankruptcy dismissals. Our findings emphasize the importance of financial stability and housing security in family structures, suggesting that debt relief policies have broader social implications beyond financial well-being.

Keywords: Debt Relief, Marital Stability, Housing Stability, Foreclosure, Bankruptcy, Financial Distress, Household Finance, Natural Disasters

JEL Classification: G51, D1, D12, D14, K35, R2, G33