Consumer Bankruptcy and Financial Health
This paper estimates the effect of Chapter 13 bankruptcy protection on post-filing financial outcomes using a new dataset linking bankruptcy filings to credit bureau records. Our empirical strategy uses the leniency of randomly-assigned judges as an instrument for Chapter 13 protection. Over the first five post-filing years, we find that Chapter 13 protection decreases an index measuring adverse financial events such as civil judgments and repossessions by 0.316 standard deviations, increases the probability of being a homeowner by 13.2 percentage points, and increases credit scores by 14.9 points. Chapter 13 protection has little impact on open unsecured debt, but decreases the amount of debt in collections by $1,315.
We thank Tal Gross, Matthew Notowidigdo, and Jialan Wang for providing the bankruptcy data used in this analysis. We also thank Lanier Benkard, Raj Chetty, Roland Fryer, Edward Glaeser, Guido Imbens, Lawrence Katz, Geng Li, and numerous seminar participants for helpful comments and suggestions. Jessica Wagner provided outstanding research assistance. Financial support from the Harvard Business School is gratefully acknowledged. All remaining errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Will Dobbie & Paul Goldsmith-Pinkham & Crystal S. Yang, 2017. "Consumer Bankruptcy and Financial Health," The Review of Economics and Statistics, vol 99(5), pages 853-869. citation courtesy of