Personal Bankruptcy Protection and Household Debt

74 Pages Posted: 22 Apr 2024 Last revised: 11 Feb 2025

See all articles by Felipe Severino

Felipe Severino

Dartmouth College - Tuck School of Business

Meta Brown

Ohio State University (OSU)

Rajashri Chakrabarti

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: April 01, 2024

Abstract

Increasing personal bankruptcy protection raises consumers’ desire to borrow and lenders’ cost of extending credit; the impact on equilibrium borrowing is ambiguous. Using bankruptcy protection changes between 1999 and 2005 across U.S. states, we find that borrowers respond to greater protection by increasing their unsecured debt. Border county estimates suggest that local economic conditions do not drive these results. Borrowers pay more for protection through higher interest rates, yet delinquency is unaffected. Remarkably, our results indicate that rising borrower demand outstripped decreasing supply. Increased protections did not reduce the aggregate level of household debt but affected the composition of borrowing.

Keywords: bankruptcy, debt, credit card, delinquency

JEL Classification: D14, D18, H81, G33

Suggested Citation

Severino, Felipe and Brown, Meta and Chakrabarti, Rajashri, Personal Bankruptcy Protection and Household Debt (April 01, 2024). FRB of New York Staff Report No. 1099, Rev. December 2024, https://doi.org/10.59576/sr.1099 , Available at SSRN: https://ssrn.com/abstract=4800995 or http://dx.doi.org/10.2139/ssrn.4800995

Felipe Severino

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

HOME PAGE: http://fseverino.host.dartmouth.edu

Meta Brown

Ohio State University (OSU) ( email )

Blankenship Hall-2010
901 Woody Hayes Drive
Columbus, OH OH 43210
United States

Rajashri Chakrabarti (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

HOME PAGE: http://nyfedeconomists.org/chakrabarti

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