The Social Dimension to the Consumer Bankruptcy Decision (original) (raw)

Personal bankruptcy: theory and evidence

Economic Review, 1982

After the new bankruptcy code became effective October 1, 1979, the number of personal bankruptcy filings (PBFs) in the United States sharply increased to record highs. Some analysts believe that the new code is primarily , responsible for this increase, To evaluate this belief, KJ. Kowalewski examines the theoretical factors behind a consumer's decision to file for bankruptcy; in the aggregate these factors are broadly consistent with the behavior of PBFs in the past 20 years. Using these theoretical factors, , he develops a regression model to explain PBFs and to eval-'uate the impact of the new code. He finds that the new code may have had a smaller impact on PBFs than .previous studies have reported.

Models of Consumer Bankruptcy: Implications for Research and Policy

Journal of Consumer Policy, 1997

The author explores three models of individual bankruptcy law which might provide some guidance for analysing policy and for posing further research questions in relation to bankruptcy as a legal and social institution. The models are: (1) Bankruptcy law as a response to deviant behaviour; (2) Bankruptcy as consumer protection; (3) Bankruptcy as social welfare law. Some tentative thoughts are also offered on the comparative analysis of consumer bankruptcy as a focus for understanding relationships between legal and social norms.

Personal Bankruptcy Decisions Before and After Bankruptcy Reform

2012

We examine the personal bankruptcy decisions of lower-income homeowners before and after the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. Econometric studies suggest that personal bankruptcy is explained by financial gain rather than adverse events, but data constraints have hindered tests of the adverse events hypothesis. Using household level panel data and controlling for the financial benefit of filing, we find that stressors related to cash flow, unexpected expenses, unemployment, health insurance coverage, medical bills, and mortgage delinquencies predict bankruptcy filings a year later. At the federal level, BAPCPA explains a decrease in filings over time in counties that experienced lower filing rates. Bankruptcy Determinants 2003-09 P a g e | 1 Personal Bankruptcy Decisions of Lower-Income Homeowners Personal bankruptcy filings increased five-fold from 1980 through October 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act (B...

Causes and effects of consumer bankruptcies: a cross-cultural comparison

Journal of Consumer Studies and Home Economics, 1992

Department of Human Development and Family Data for this study were collected during 1988 through surveys conducted in Canada, Japan, Scotland and the United States. The overall objectives of the study were to determine differences in factors influencing decisions to file bankruptcy, expectations from bankruptcy and impact of bankruptcy filing on debtor's life in each country. It was found that over 50% of debtors in all countries except the United States (46%) identified 'too much borrowing' as a reason for having to file for bankruptcy. Most of the debtors in each country agreed that bankruptcy provided a 'fresh start'. In addition, U.S. and Canadian debtors also indicated that filing for bankruptcy had a positive influence on their health status, family relations and the employment status. The impact of bankruptcy for Japanese debtors was rather harsh, resulting in family problems, health problems, suicides and running away from home. To help reduce the growth in bankruptcy and halt repeat bankruptcies, a multi-level effort focusing on lending practices, borrowing practices and bankruptcy procedures is needed.

Social Exclusion in European Consumer Bankruptcy Systems

In the past decades the growth of consumer credit has led to increased debt problems of private households, and many advanced economies have responded to this new social risk of consumer over-indebtedness by adopting consumer bankruptcy laws that enable insolvent individuals a financial ‘fresh start’ via discharge of debts. This paper discusses consumer bankruptcy as social policy in finance-driven capitalism, classifies the consumer bankruptcy systems of fifteen advanced economies, and examines the problem of social exclusion in European consumer bankruptcy systems. Three main points are made: First, two approaches to consumer bankruptcy in Western Europe can be discerned, a ‘Germanic’ liability model emphasizing the debtor’s responsibility for debt payment, and a ‘Franco-Scandinavian’ mercy model focusing on the debtor’s deservingness for debt relief. Second, both approaches exclude a considerable share of insolvent individuals from a ‘fresh start’, but they differ regarding their normative foundations, mechanisms of exclusion, and types of debtors excluded. Third, exclusion of over-indebted households harms debtors and societies, and it can be tackled by strengthening consumer bankruptcy’s function of regulating the credit market, not by bringing welfare policies into consumer debt relief.

Comparative Consumer Bankruptcy

This article discusses comparative consumer bankruptcy in the context of the international spread of consumer credit capitalism and its accompanying social cost, overindebtedness. The article outlines the contours of regulation of credit markets and overindebtedness within Europe, the influence of the U.S. idea of the "fresh start" on recent changes in European debt-adjustment laws and continuing contrasts with the U.S. approach to bankruptcy. As consumer debt increases in Europe and elsewhere, these differences between continental European and North American approaches to bankruptcy might be explained by the path-dependence of legal institutions, cultural differences, or the political influence of interest groups. The article is skeptical about cultural explanations of difference and suggests the value of an analysis that is sensitive to political economy and history. It also argues that future comparative research should focus on overindebtedness rather than bankruptcy.

Personal Bankruptcy Reform, Credit Availability, and Financial Distress

SSRN Electronic Journal, 2003

Whether improving access to credit alleviates financial distress among households is the subject of intense debate. While it can mitigate financial hardship through the possibility of consumption smoothing, credit access may exacerbate distress among certain group of borrowers because of over-borrowing. Using the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), I investigate the impact of consumer credit availability on households' borrowing decisions and the subsequent effect on their financial well-being. Exploiting arguably exogenous cross-state variation in the generosity of bankruptcy law (exemption limits) prior to the Act, I find that households' access to credit increased significantly more in states with higher exemption limits, where lenders were more exposed to losses from bankruptcy filings. Households with low education and those with self-reported self-control problems responded aggressively by taking on large amounts of debt and spending it mainly on apparel and recreational activities. Consequently, households' distress, as measured by their inability to repay mortgage loans as well as a significant decline of food consumption, increased substantially more among low educated households and those with self-control problems. The paper highlights the real cost of credit availability for a subgroup of vulnerable borrowers.

Consumer Bankruptcy and Information

2012

Bank of Canada working papers are theoretical or empirical works-in-progress on subjects in economics and finance. The views expressed in this paper are those of the authors. No responsibility for them should be attributed to the Bank of Canada.