Shame As It Ever Was: Stigma and Personal Bankruptcy

19 Pages Posted: 5 Dec 2012

See all articles by Kartik Athreya

Kartik Athreya

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2004

Abstract

Many believe that bankruptcy was more painful in the past than now and that the stigma associated with bankruptcy has declined. But a model in which bankruptcy affects both demand and supply in the unsecured credit market suggests otherwise. The model shows that a decrease in stigma, while leading to increases in bankruptcy rates, yields implications for the growth of household debt and loss rates for unsecured loans that are flatly counterfactual. Moreover, the model shows that recent reductions in the transactions costs of intermediating unsecured credit can partially account for the simultaneous rise in both bankruptcy rates and debt levels. Therefore, stigma certainly is insufficient and perhaps unnecessary in explaining bankruptcy and unsecured credit market behavior over the 1990s.

Suggested Citation

Athreya, Kartik, Shame As It Ever Was: Stigma and Personal Bankruptcy (2004). FRB Richmond Economic Quarterly, vol. 90, no. 2, Spring 2004, pp. 1-19, Available at SSRN: https://ssrn.com/abstract=2185025

Kartik Athreya (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

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

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