Personal Bankruptcy in the U.S.: Legal and Economic Issues

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9319960 WHITE This project seeks to develop a better scientific understanding of the factors that lead people to file for personal bankruptcy. About 900,000 individuals and married couples filed for personal bankruptcy in 1992, a three-fold increase since 1984. There are about 10 personal bankruptcies for each corporate bankruptcy and lenders lose more in personal bankruptcies than in corporate bankruptcies. But while corporate bankruptcy has received extensive attention from researchers in several fields, there has been little research by economists on personal bankruptcy. This project has several aims: to increase understanding of personal bankruptcy by modeling individuals' decisions to file for bankruptcy, by testing whether credit markets are responsive to specific features of personal bankruptcy law, and by analyzing possible reforms to U.S. personal bankruptcy law. One part of this project involves constructing a theoretical model of individual households' bankruptcy decisions. It will be combined with a model of lenders' behavior to produce a model of the credit market that can be used to analyze current U.S. bankruptcy policy from an economic efficiency standpoint. A second part of the project involves empirically testing whether borrowers' demand for credit and lenders' willingness to lend vary depending on specific features of personal bankruptcy law in the state where the borrower lives. Data for the studies will come from the Survey of Consumer Finance, supplemented with information concerning each state's bankruptcy exemptions. The theoretical model and the empirical study will be combined and used to analyze possible reforms to U.S. personal bankruptcy law. ***