Factors Affecting an Individual's Bankruptcy Filing Decision
30 Pages Posted: 26 May 1999
Date Written: May 4, 1999
Using a household-level bankruptcy data set where five specific reasons for bankruptcy filing are observed, we estimate a multinomial logistic model explaining bankruptcy filing for each of these reasons. While variables like age (of the household head), past problems with money management and the gender of a single head of household appear to be important predictors of bankruptcy filing for (almost) all reasons, other variables appear to have the power to discriminate across the five reasons for bankruptcy filing. These include the (un)employment status of the household head (explains bankruptcy filing for job loss and for harassment/lawsuit); the length of employment of the household head (explains filing for marital disruption); (bad) health and (the lack of) Medicare/Medicaid protection (explains bankruptcy filing for health reason and for credit misuse); household income (explains bankruptcy filing for health reasons); and the dollar benefit level of filing for bankruptcy (explains bankruptcy filing for credit misuse). An important result is the increasing and convex relationship between the dollar benefit of filing for bankruptcy and the probability of filing for credit misuse. This latter result has important policy implications.
JEL Classification: K2, N2
Suggested Citation: Suggested Citation