Insolvency after the 2005 Bankruptcy Reform

43 Pages Posted: 28 Aug 2018 Last revised: 17 Feb 2021

Multiple version iconThere are 3 versions of this paper

Date Written: August 2018


The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) is the most important reform of personal bankruptcy in the United States in recent years. This legislation overhauled eligibility requirements and increased monetary costs of filing for bankruptcy. Using administrative credit file data from a nationally representative panel, we quantify the effects of the reform on bankruptcy, insolvency, and foreclosure, we explore the mechanism generating these responses and examine the consequences for households. We find that the reform caused a 50% permanent drop in Chapter 7 filings, a 25% permanent rise in insolvency, but had no effect on Chapter 13 filings. Exploiting the cross-district variation in filing costs resulting from the reform, we show that these responses are driven by liquidity constraints associated with the higher monetary cost of filing for bankruptcy. We show that insolvency is associated with worse outcomes than bankruptcy, in terms of access to credit and credit scores, suggesting that BAPCPA may have removed an important form of relief for financially distressed borrowers.

Suggested Citation

Albanesi, Stefania and Nosal, Jaromir, Insolvency after the 2005 Bankruptcy Reform (August 2018). NBER Working Paper No. w24934, Available at SSRN:

Stefania Albanesi (Contact Author)

University of Pittsburgh ( email )

135 N Bellefield Ave
Pittsburgh, PA 15260
United States

HOME PAGE: http://

Jaromir Nosal

Boston College

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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