Labor Market Upheaval, Default Regulation, and Consumer Debt

Kartik Arthreya, Juan Sanchez, Xuan Tam () and Eric Young
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Kartik Arthreya: Federal Reserve Bank of Richmond
Authors registered in the RePEc Author Service: Kartik Athreya

Review of Economic Dynamics, 2015, vol. 18, issue 1, 32-52

Abstract: In 2005, reforms made formal personal bankruptcy much more costly. Shortly after, the US began to experience its most severe recession in seventy years, and while personal bankruptcy rates rose, they rose only modestly given the severity of the rise in unemployment. By contrast, informal default through delinquency rose sharply. In the subsequent recovery, households have been widely viewed as "deleveraging" (Mian and Sufi 2011, Krugman and Eggertson 2012) via the largest reduction of unsecured debt seen in the past three decades. We measure the relative roles of recent bankruptcy reform and labor market risk in accounting for consumer debt and default over the Great Recession. Our results suggest that bankruptcy reform likely prevented a substantial increase in formal bankruptcy filings, but had only limited effect on informal default from delinquencies, and that changes in job-finding rates were central to both. (Copyright: Elsevier)

Keywords: Delinquency; Personal bankruptcy; Unsecured debt; Job separation; Job finding (search for similar items in EconPapers)
JEL-codes: D9 E21 K35 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (17)

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DOI: 10.1016/j.red.2014.08.001

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