Changes in Personal Bankruptcy Protection Laws: The Impact on Bank Lending to Small Businesses
45 Pages Posted: 6 Oct 2018 Last revised: 30 Jan 2019
Date Written: January 11, 2019
In the U.S., individual parties who file for bankruptcy can exempt a certain dollar amount of property from creditor liquidation during the debt settlement process. We examine the effect of changes to these protection laws on bank lending to small businesses. Our results indicate that additional debtor protection, brought about by changes to bankruptcy laws, significantly reduces the amount of credit issued by banks to small businesses. We find that this impact is more severe for small businesses located in census tracts with low income levels and that our results are largely driven by lending in urban areas.
Keywords: Bank lending to small businesses; Bankruptcy exemption laws; Debtor protection
JEL Classification: G32, G33, K35, M10
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