Who Files for Bankruptcy? The Heterogeneous Impact of State Laws on a Household's Bankruptcy Decision
Forthcoming in American Law and Economics Review
26 Pages Posted: 12 Jan 2012 Last revised: 13 Jul 2019
Date Written: January 1, 2019
This paper examines the heterogeneous impact of state exemption laws and state garnishment laws on bankruptcy. Using a new household level dataset, my empirical specification simultaneously examines the impact these laws have on a household’s bankruptcy decision as well as a household’s assets and unsecured debts. I find that high exemption laws have a positive impact on bankruptcy and that this effect is increasing in assets. Additionally, I find that high garnishment rates have a positive impact on bankruptcy, which is increasing in income. Moreover, I examine the policy implications of standardizing state exemption laws and state garnishments laws. Understanding the heterogeneous effects of these laws is crucial as they suggest that a household with a given set of financial characteristics will seek bankruptcy relief if it resides in one state but will have to use alternative consumption smoothing measures if it lives in a different state.
Keywords: personal bankruptcy, exemption laws, garnishment laws
Suggested Citation: Suggested Citation