Personal Bankruptcy Protection and Household Debt

62 Pages Posted: 9 Jun 2014 Last revised: 13 Dec 2020

See all articles by Felipe Severino

Felipe Severino

Dartmouth College - Tuck School of Business

Meta Brown

Federal Reserve Bank of New York

Date Written: December 1, 2020

Abstract

Increasing personal bankruptcy protection increases consumers' desire to borrow and lenders' cost of extending credit; the impact on equilibrium borrowing is ambiguous. Using bankruptcy protection changes across U.S. states between 1999 and 2005, we find that borrowers respond to increased protection by increasing their unsecured debt. Border-county estimates suggest that local economic conditions do not drive these results. Borrowers pay more for protection through higher interest rates, yet delinquency is unaffected. Remarkably, our results indicate that rising borrower demand outstripped decreasing supply in this period. The aggregate level of household debt did not decrease, but the composition of borrowing changed.

Keywords: household debt, credit markets

JEL Classification: G00, G33, G51, D14, D18, K35, R2

Suggested Citation

Severino, Felipe and Brown, Meta, Personal Bankruptcy Protection and Household Debt (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=2447687 or http://dx.doi.org/10.2139/ssrn.2447687

Felipe Severino (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

HOME PAGE: http://fseverino.host.dartmouth.edu

Meta Brown

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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