How Does Consumer Bankruptcy Protection Impact Household Outcomes?

87 Pages Posted: 1 Aug 2016 Last revised: 10 Oct 2016

Carlos Parra

Instituto Tecnológico Autónomo de México (ITAM)

Date Written: February 16, 2016

Abstract

Chapter 7 bankruptcy protection provides more than $100 billion in debt relief 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 the effect of Chapter 7 on subsequent household investment behavior and financial performance. I find that Chapter 7 protection increases the probability of the filer (i) creating a new business, (ii) obtaining secured lending, (iii) becoming a homeowner, and (iv) avoiding home foreclosure. Additional tests suggest that although Chapter 7 protects individuals in a variety of ways, 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? (February 16, 2016). 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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