English, Article, Journal or magazine article edition: Evidence on the Effect of US Consumer Bankruptcy Exemptions Charles GRANT

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Bookmark: http://trove.nla.gov.au/version/57330
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Evidence on the Effect of US Consumer Bankruptcy Exemptions
Author
  • Charles GRANT
Physical Description
  • preprint
Notes
  • Consumption, Bankruptcy Law, Debt, Insurance
  • RePEc:red:sed004:253
  • Bankruptcy (defaulting on one's debts) acts as insurance if it allows default in cases of negative income shocks. However, if debts are not fully recoverable, lenders may instead react by limiting the amount that they allow households to borrow. This upper borrowing limit will increase as the punishment for defaulting increases. The US provides a natural test for these effects since rules about which assets may be kept by the debtor (the exemptions) when filing for bankruptcy differ dramatically across the different states. While increasing the level of these exemptions causes less debt to be held by consumers, empirical results also show that consumption becomes much smoother, suggesting that these bankruptcy exemptions help households insure themselves against adverse shocks.
  • RePEc:eui:euiwps:eco2003/​19
Language
  • English
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