Personal Bankruptcy and Credit Supply and Demand

Reint Gropp (), John Karl Scholz () and Michelle J White

The Quarterly Journal of Economics, 1997, vol. 112, issue 1, pages 217-51

Abstract: This paper examines how personal bankruptcy and bankruptcy exemptions affect the supply and demand for credit. While generous state-level bankruptcy exemptions are probably viewed by most policymakers as benefiting less-well-off borrowers, the authors' results using data from the 1983 Survey of Consumer Finances suggest that they increase the amount of credit held by high-asset households and reduce the availability and amount of credit to low-asset households, conditioning on observable characteristics. Thus, bankruptcy exemptions redistribute credit toward borrowers with high assets. Interest rates on automobile loans for low-asset households also appear to be higher in high exemption states. Copyright 1997, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 1997
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