The anatomy of U.S. personal bankruptcy under Chapter 13

Hülya K. K. Eraslan, Wenli Li and Pierre Daniel Sarte ()

No 07-05, Working Paper from Federal Reserve Bank of Richmond

Abstract: By compiling a novel dataset from bankruptcy court dockets recorded in Delaware between 2001 and 2002, we build and estimate a structural model of Chapter 13 bankruptcy. This allows us to quantify how key debtor characteristics, including whether they are experiencing bankruptcy for the first time, their past due secured debt at the time of filing, and income in excess of that required for basic maintenance, affect the distribution of creditor recovery rates. The analysis further reveals that changes in debtors' conditions during bankruptcy play a nontrivial role in governing Chapter 13 outcomes, including their ability to obtain a financial fresh start. Our model then predicts that the more stringent provisions of Chapter 13 recently adopted, in particular those that force subsets of debtors to file for long-term plans, do not materially raise creditor recovery rates but potentially make discharge less likely for that subset of debtors. This finding also arises in the context of alternative policy experiments that require bankruptcy plans to meet stricter standards in order to be confirmed by the court.

Keywords: Bankruptcy (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law and nep-reg
Date: 2007
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Working Paper: The anatomy of U.S. personal bankruptcy under Chapter 13 (2007)
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