Accounting for the Rise in Consumer Bankruptcies

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

No 20066, University of Western Ontario, Economic Policy Research Institute Working Papers from University of Western Ontario, Economic Policy Research Institute

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, stories related to a change in the credit market environment are more plausible. In particular, we find that a combination of a decrease in the transactions cost of lending and a decline in the cost of bankruptcy does a good job in accounting for the rise in consumer bankruptcy. We also argue that the abolition of usury laws and other legal changes are unimportant.

Keywords: consumer bankruptcy; uncertainty; credit markets; stigma (search for similar items in EconPapers)
JEL-codes: E21 E44 G18 K35 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-bec, nep-dge, nep-fin, nep-fmk, nep-law and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Accounting for the Rise in Consumer Bankruptcies (2010)
Working Paper: Accounting for the Rise in Consumer Bankruptcies (2007)
Working Paper: Accounting for the Rise in Consumer Bankruptcies (2006)
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