Accounting for the Rise in Consumer Bankruptcies
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.
-
-
Copy CitationIgor Livshits, James MacGee, and Michèle Tertilt, "Accounting for the Rise in Consumer Bankruptcies," NBER Working Paper 13363 (2007), https://doi.org/10.3386/w13363.Download Citation
Published Versions
Igor Livshits & James MacGee & Michele Tertilt, 2010.
"Accounting for the Rise in Consumer Bankruptcies,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 2(2), pages 165-93, April.
citation courtesy of 
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
