What Happens When Information Leaves a Market? Evidence from Postbankruptcy Consumers

David K. Musto
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David K. Musto: University of Pennsylvania

The Journal of Business, 2004, vol. 77, issue 4, 725-748

Abstract: Federal law mandates the removal of personal bankruptcies from credit reports after 10 years. The removal's effect is market efficiency in reverse. The short-term effect is a spurious boost in apparent creditworthiness, especially for the more creditworthy bankrupts, delivering a substantial increase in both credit scores and the number and aggregate limit of bank cards. The longer-term effect is lower scores and higher delinquency than initial full-information scores predict. These findings relate to both the debate over the bankruptcy code and the wisdom of influencing market clearing by removing information.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:77:y:2004:i:4:p:725-748

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