Asset Exemptions and Consumer Bankruptcies: Evidence from Individual Filings

85 Pages Posted: 3 Jul 2019 Last revised: 4 Jan 2020

See all articles by Nathaniel Pattison

Nathaniel Pattison

Southern Methodist University, Department of Economics

Richard M. Hynes

University of Virginia School of Law

Date Written: June 1, 2019

Abstract

Combining case-level data on all consumer bankruptcies in the last decade with changes in states' homestead exemption levels, we estimate how exemption changes affect the number and composition of bankruptcy filers. When exemptions become more debtor- friendly, there is an immediate and persistent increase in Chapter 7 filings by debtors with home equity. The new filers have more home equity but similar non-housing wealth and lower incomes than the average filer with home equity. Thus, raising exemptions draws wealthier, but lower-income households into bankruptcy. Moreover, the additional bankruptcies are filed by households whose home equity becomes completely protected by the exemption increase, indicating that having even a small amount of non-exempt equity is a significant deterrent to filing.

Keywords: bankruptcy, consumer finance

Suggested Citation

Pattison, Nathaniel and Hynes, Richard M., Asset Exemptions and Consumer Bankruptcies: Evidence from Individual Filings (June 1, 2019). Virginia Law and Economics Research Paper No. 2019-14, Available at SSRN: https://ssrn.com/abstract=3413911

Nathaniel Pattison (Contact Author)

Southern Methodist University, Department of Economics ( email )

3300 Dyer Street, Umphrey Lee Suite 301
Dallas, TX 75275
United States

HOME PAGE: http://pattison-nate.github.io

Richard M. Hynes

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
434-924-3743 (Phone)

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