Accounting for the Rise in Consumer Bankruptcies

Igor Livshits, James (Jim) MacGee () and Michele Tertilt

No 13363, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E21 E44 G18 K35 (search for similar items in EconPapers)
Date: 2007-09
New Economics Papers: this item is included in nep-bec, nep-dge, nep-law and nep-mac
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Published as 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.

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Journal Article: Accounting for the Rise in Consumer Bankruptcies (2010)
Working Paper: Accounting for the Rise in Consumer Bankruptcies (2006)
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