Personal Bankruptcy Reform, Credit Availability, and Financial Distress
61 Pages Posted: 15 Jan 2014 Last revised: 3 Sep 2015
Date Written: January 14, 2015
Using the 2005 (pro-creditor) bankruptcy reform in the US, I investigate the impact of consumer credit availability on households' borrowing decisions and the subsequent effect on their financial well-being. Access to credit for households increased significantly more in states that were affected more. Households with low education and those with self-control problems responded aggressively by taking on debt and spending it mainly on apparel and recreational activities. Consequently, financial and economic distress increased substantially more among the same borrowers. The results highlight the real cost of credit availability for a subgroup of vulnerable households.
Keywords: Bankruptcy, Credit, Distress
JEL Classification: D33, G21, J21
Suggested Citation: Suggested Citation