Household borrowing after personal bankruptcy

Song Han and Geng Li

No 2009-17, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: A large literature has examined factors leading to filing for personal bankruptcy, but little is known about household borrowing after bankruptcy. Using data from the Survey of Consumer Finances, we find that relative to comparable nonfilers, bankruptcy filers generally have more limited access to unsecured credit but borrow more secured debt post bankruptcy, and they pay higher interest rates on all types of debt. We also find that credit access and borrowing costs improve as more time passed since filing. However, filers experience renewed debt payment difficulties and accumulate less wealth, even many years after filing, suggesting that for many bankrupt households, debt discharges fail to generate an effective fresh start as intended by the law. Our estimate also provides empirical guidance for calibrating the equilibrium models of household credit.

Keywords: Bankruptcy; Loans, Personal (search for similar items in EconPapers)
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Date: 2009
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