How Does Consumer Bankruptcy Protection Impact Household Outcomes?

90 Pages Posted: 1 Aug 2016 Last revised: 20 May 2018

Carlos Parra

Instituto Tecnológico Autónomo de México (ITAM)

Date Written: May 18, 2018

Abstract

Chapter 7 bankruptcy, the main debt relief program for U.S. households, provides more than $150 billion each year, yet its impact on consumers remains unclear. Using unique hand-collected data from individual bankruptcy petitions, I employ a regression discontinuity design to estimate Chapter 7’s effect on subsequent household real investment and financial performance. Chapter 7 protection increases the probability of a debtor (1) creating a new business, (2) becoming a first-time homeowner, and (3) avoiding home foreclosure. Although Chapter 7 protects people in a variety of ways, for example, by stopping creditor harassment, the above findings arise because of debt relief.

Keywords: Personal Bankruptcy, Debt Relief, Household Finance, Foreclosure, Credit Constraints, Investment

JEL Classification: D14, K35, G18, G11, G21

Suggested Citation

Parra, Carlos, How Does Consumer Bankruptcy Protection Impact Household Outcomes? (May 18, 2018). Available at SSRN: https://ssrn.com/abstract=2808851 or http://dx.doi.org/10.2139/ssrn.2808851

Carlos Parra (Contact Author)

Instituto Tecnológico Autónomo de México (ITAM) ( email )

Av. Camino a Sta. Teresa 930
Col. Héroes de Padierna
Mexico City, D.F. 01000, Federal District 01080
Mexico

HOME PAGE: http://www.carlosrparra.com

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