Accounting for the rise in consumer bankruptcies
By: Igor Livshits, James MacGee, Michèle Tertilt.
Contributors: MacGee, James.; Tertilt, Michèle.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13363.; Working paper series (National Bureau of Economic Research) -- working paper no. 13363.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 44
Subjects: Bankruptcy -- United States -- Econometric models; Credit -- United States; Debt -- United States; Finance, Personal -- United States
Description: Personal bankruptcies in the United States have increased dramatically, rising from 1.4 per thousand working age population in 1970 to 8.5 in 2002. We use a heterogeneous agent life-cycle model with competitive financial intermediaries who can observe households' earnings, age and current asset holdings to evaluate several commonly offered explanations. We find that increased uncertainty (income shocks, expense uncertainty) cannot quantitatively account for the rise in bankruptcies. Instead, the rise in filings appears to mainly reflect changes in the credit market environment. We find that credit market innovations which cause a decrease in the transactions cost of lending and a decline in the cost of bankruptcy can largely accounting for the rise in consumer bankruptcy. We also argue that the abolition of usury laws and other legal changes are unimportant.
Notes: "September 2007"

Includes bibliographical references (p. 35-41).

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