The Role of Marital Status for the Evaluation of Bankruptcy Regimes

Jan Sun ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: The consumer finance literature has emphasized the importance of income and ex pense risk for the evaluation of bankruptcy regimes. Single and married households differ in the risks they face. In this paper, I build the first quantitative consumer default model that explicitly models singles and couples. I calibrate my model to the United States in 2019 and estimate (medical) expense shocks separately for single and married individuals. My calibrated model generates large differences in bankruptcy rates across marital status as in the data. I examine how the preferred degree of bankruptcy leniency differs between singles and couples. There are several channels at work: Differences on the income side between singles and couples cause couples to prefer a stricter bankruptcy regime due to the intra-household insurance channel. However, increased risk for couples due to divorce and on the expense side outweigh the first channel. The net effect is that couples prefer more lenient bankruptcy than singles. My findings suggest that marital status is important to take into account for the evaluation of bankruptcy regimes.

Keywords: Consumer Credit; Bankruptcy; Default; Bankruptcy Regulation; Marital Status (search for similar items in EconPapers)
JEL-codes: D13 D14 D15 E21 E49 G18 G51 J12 K35 (search for similar items in EconPapers)
Pages: 50
Date: 2022-07
New Economics Papers: this item is included in nep-ban, nep-dge and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2022_361

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