Driven to Bankruptcy

Abstract

Over the last ten years, 15.1 million people filed for bankruptcy owning 16.4 million cars. These cars provided access to work, education, medical care, childcare, food, and other life necessities. They also were major household investments, the most expensive asset most bankruptcy filers owned other than a house. Using original data from the Consumer Bankruptcy Project, we document what happens to car owners and their car loans when they enter bankruptcy. In brief, we find that people who file bankruptcy own automobiles at the same rate as the general population, and that they overwhelmingly indicate that they want to use bankruptcy as a tool to keep their automobiles. We further identify a subset of debtors, who constitute about a third of filers, who come to bankruptcy owning automobiles and little else. These cases are the most likely to be filed by people “driven to bankruptcy.” We detail what our results show about how people use consumer bankruptcy and where the system appears to falter. We conclude with recommendations on how to remedy these system issues, as well as what the future of the automobile marketplace, particularly subprime auto loans, likely means for people’s continued use of bankruptcy.

Keywords: consumer bankruptcy, chapter 7, chapter 13, automobiles, automobile lending, subprime auto lending, car loans, cars, auto debt, financial distress, license suspensions, parking tickets, auto repossession, debt collection

JEL Classification: D10, K35, K36