Personal Bankruptcy Protection and Household Debt

52 Pages Posted: 9 Jun 2014 Last revised: 21 Jun 2017

Felipe Severino

Tuck School of Business at Dartmouth

Meta Brown

Federal Reserve Bank of New York

Date Written: June 1, 2017

Abstract

Increasing personal bankruptcy protection can increase credit demand while reducing borrowers’ access to credit. Using changes in bankruptcy protection across US states over time, we show that these laws increase borrowers’ holdings of unsecured credit, but not secured debt. We also find an increased interest rate for unsecured credit only. These effects are driven by home owners in lower-income areas. We find on average no measurable increase in delinquency rates of households in the subsequent three years. These results suggest that increased bankruptcy protections did not reduce the aggregate level of household debt, but affected the composition of borrowing.

Keywords: household debt, credit markets

JEL Classification: G00, G33, D14, D18, R2

Suggested Citation

Severino, Felipe and Brown, Meta, Personal Bankruptcy Protection and Household Debt (June 1, 2017). Available at SSRN: https://ssrn.com/abstract=2447687 or http://dx.doi.org/10.2139/ssrn.2447687

Felipe Severino (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.dartmouth.edu/~fseverino

Meta Brown

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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