Bankruptcy Reform, Credit Availability, and Financial Distress

Hamid Boustanifar

Finance, 2022, vol. 43, issue 3, 159-220

Abstract: This paper shows that in the United States the pro-creditor personal bankruptcy reform of 2005 led to a significant increase in access to, and volume of, credit for households. The paper documents the heterogeneous effects of increased credit access depending on household characteristics. While credit-constrained households were better off following the reform, households with low education and those with self-control problems appear to be negatively affected as a result of over-borrowing. The latter group experienced a significantly larger deterioration in financial health in the following years. Overall, the results highlight the real cost of credit availability for a subgroup of vulnerable households and has implications for the design of personal bankruptcy laws.

Keywords: Credit Access; Personal Bankruptcy; Household debt; Financial distress (search for similar items in EconPapers)
Date: 2022
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