How Does Consumer Bankruptcy Protection Impact Household Outcomes?
90 Pages Posted: 1 Aug 2016 Last revised: 20 May 2018
Date Written: May 18, 2018
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: Suggested Citation