It’s not (only) personal, it’s business: Personal bankruptcy exemptions and local small business credit

42 Pages Posted: 6 Oct 2018 Last revised: 6 Oct 2022

See all articles by Jason Damm

Jason Damm

University of Miami

Rebel A. Cole

Florida Atlantic University

John Hackney

University of South Carolina - Department of Finance

Masim Suleymanov

University of Houston

Date Written: October 3, 2022

Abstract

In the U.S., state-level exemptions determine the amount of property that individuals can protect from creditor liquidation during the debt settlement process. We exploit within-MSA variation in personal bankruptcy exemptions created by state borders to identify the spillover effects of these laws on small business credit availability. We find a reduction of 1-2.2% in credit volume following exemption increases. The effect is strongest for the smallest businesses, which are more financially constrained. Increases in exemptions lead to fewer small establishments, especially in industries dependent on external finance, suggesting that negative real economic effects occur via a credit market channel.

Keywords: Bank lending; Bankruptcy exemption laws; Debtor protection; Credit availability; Small-business lending

JEL Classification: G32, G33, K35, M10

Suggested Citation

Damm, Jason and Cole, Rebel A. and Hackney, John and Suleymanov, Masim, It’s not (only) personal, it’s business: Personal bankruptcy exemptions and local small business credit (October 3, 2022). Available at SSRN: https://ssrn.com/abstract=3247930 or http://dx.doi.org/10.2139/ssrn.3247930

Jason Damm (Contact Author)

University of Miami ( email )

5250 University Drive
Coral Gables, FL 33146
United States
(941) 587-9425 (Phone)

Rebel A. Cole

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

John Hackney

University of South Carolina - Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

Masim Suleymanov

University of Houston ( email )

4800 Calhoun Rd
Houston, TX Texas 77004
United States

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