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The Regulation of Non-Judicial Debt Collection and the Consumer's Choice Among Repayment, Bankruptcy and Informal Bankruptcy

31 Pages Posted: 15 Oct 2009  

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

Date Written: October 12, 2009

Abstract

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.

Suggested Citation

Hynes, Richard M. and Dawsey, Amanda E. and Ausubel, Lawrence M., The Regulation of Non-Judicial Debt Collection and the Consumer's Choice Among Repayment, Bankruptcy and Informal Bankruptcy (October 12, 2009). Virginia Law and Economics Research Paper No. 2009-13. Available at SSRN: https://ssrn.com/abstract=1487649 or http://dx.doi.org/10.2139/ssrn.1487649

Richard M. Hynes (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
434-924-3743 (Phone)

Amanda E. Dawsey

University of Montana - School of Business Administration - Department of Economics ( email )

Liberal Arts 407
Missoula, MT 59808
United States

Lawrence M. Ausubel

University of Maryland - Department of Economics ( email )

Tydings Hall
College Park, MD 20742
United States
301-405-3495 (Phone)
301-405-3542 (Fax)

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