Personal Bankruptcy: Reconciling Adverse Events and Strategic Filing Hypotheses Using Heterogeneity in Filing Types
42 Pages Posted: 8 Feb 2019
Date Written: October 17, 2012
Personal bankruptcies have continued to rise even after passage of a comprehensive reform designed to curb strategic use of bankruptcy. We formalize a distinction between strategic filing and adverse events filing by testing whether consumers manipulate their debt and filing decision or not. Test results are consistent with adverse events hypothesis and are replicated using PSID and SCF data. Extending the analysis to allow for both types, there is evidence of heterogeneity in filing types, consistent with both hypotheses. On average, approximately 16 percent of households are more likely to behave as strategic types and 84 percent as adverse events types.
Keywords: consumer bankruptcy, personal bankruptcy, adverse events, strategic filing
JEL Classification: K35, D12, D14
Suggested Citation: Suggested Citation