The Economic Consequences of Bankruptcy Reform

Tal Gross, Raymond Kluender, Feng Liu, Matthew Notowidigdo and Jialan Wang

American Economic Review, 2021, vol. 111, issue 7, 2309-41

Abstract: A more generous consumer bankruptcy system provides greater insurance against financial risks but may also raise the cost of credit. We study this trade-off using the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which increased the costs of filing for bankruptcy. We identify the effects of BAPCPA on borrowing costs using variation in the effects of the reform across credit scores. We find that a one-percentage-point reduction in bankruptcy filing risk decreased credit card interest rates by 70–90 basis points. Conversely, BAPCPA reduced the insurance value of bankruptcy, with uninsured hospitalizations 70 percent less likely to obtain bankruptcy relief after the reform.

JEL-codes: D18 G51 I13 K35 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: The Economic Consequences of Bankruptcy Reform (2020)
Working Paper: The Economic Consequences of Bankruptcy Reform (2019)
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DOI: 10.1257/aer.20191311

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