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The Anatomy of U.S. Personal Bankruptcy Under Chapter 13

41 Pages Posted: 4 Dec 2007  

Hulya Eraslan

Rice University

Wenli Li

Federal Reserve Bank of Philadelphia

Pierre-Daniel G. Sarte

Federal Reserve Bank of Richmond

Date Written: September 2007

Abstract

By compiling a novel data set from bankruptcy court dockets recorded in Delaware between 2001 and 2002, the authors build and estimate a structural model of Chapter 13 bankruptcy. This allows them to quantify how key debtor characteristics, including whether they are experiencing bankruptcy for the first time, their past-due secured debt at the time of filing, and income in excess of that required for basic maintenance, affect the distribution of creditor recovery rates. The analysis further reveals that changes in debtors' conditions during bankruptcy play a nontrivial role in governing Chapter 13 outcomes, including their ability to obtain a financial fresh start. The authors' model then predicts that the more stringent provisions of Chapter 13 recently adopted, in particular those that force subsets of debtors to file for long-term plans, do not materially raise creditor recovery rates but make discharge less likely for that subset of debtors. This finding also arises in the context of alternative policy experiments that require bankruptcy plans to meet stricter standards in order to be confirmed by the court.

Keywords: Personal Bankruptcy, Structural Estimation, Recovery Rate

JEL Classification: J22, K35, D14

Suggested Citation

Eraslan, Hulya and Li, Wenli and Sarte, Pierre-Daniel G., The Anatomy of U.S. Personal Bankruptcy Under Chapter 13 (September 2007). FRB of Philadelphia Working Paper No. 07-31. Available at SSRN: https://ssrn.com/abstract=1033518 or http://dx.doi.org/10.2139/ssrn.1033518

Hulya Eraslan (Contact Author)

Rice University ( email )

Department of Economics MS-22
Rice University P.O Box 1892
Houston, TX Texas 77251-1892
United States
7133483453 (Phone)

HOME PAGE: http://he6.web.rice.edu/

Wenli Li

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Pierre-Daniel Sarte

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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