Personal Bankruptcy: Reconciling Adverse Events and Strategic Filing Hypotheses Using Heterogeneity in Filing Types

42 Pages Posted: 8 Feb 2019

See all articles by Li Gan

Li Gan

Texas A&M University - Department of Economics; National Bureau of Economic Research (NBER)

Tarun Sabarwal

University of Kansas

Shuoxun Zhang

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Date Written: October 17, 2012

Abstract

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

Gan, Li and Sabarwal, Tarun and Zhang, Shuoxun, Personal Bankruptcy: Reconciling Adverse Events and Strategic Filing Hypotheses Using Heterogeneity in Filing Types (October 17, 2012). Available at SSRN: https://ssrn.com/abstract=3323075 or http://dx.doi.org/10.2139/ssrn.3323075

Li Gan

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tarun Sabarwal (Contact Author)

University of Kansas ( email )

1415
Lawrence, KS 66045
United States

Shuoxun Zhang

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

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