EconPapers    
Economics at your fingertips  
 

Insolvency After the 2005 Bankruptcy Reform

Stefania Albanesi () and Jaromir Nosal

No 10533, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Using a comprehensive panel data set on U.S. households, we study the effects of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), the most substantive reform of personal bankruptcy in the United States since the Bankruptcy Reform Act of 1978. The 2005 legislation introduced a means test based on income to establish eligibility for Chapter 7 bankruptcy and increased the administrative requirements to file, leading to a rise in the opportunity cost and, especially, the financial cost of filing for bankruptcy. We study the effects of the reform on bankruptcy, insolvency, and foreclosure. We find that the reform caused a permanent drop in the Chapter 7 bankruptcy rate relative to pre-reform levels, due to the rise in filing costs associated with the reform, which can be interpreted as resulting from liquidity constraints. We find that the decline in bankruptcy filings resulted in a rise in the rate and persistence of insolvency as well as an increase in the rate of foreclosure. We find no evidence of a link between the decline in bankruptcy and a rise in the number of individuals who are current on their debt. We document that these effects are concentrated at the bottom of the income distribution, suggesting that the income means tests introduced by BAPCPA did not serve as an effective screening device. We show that insolvency is associated with worse financial outcomes than bankruptcy, as insolvent individuals have less access to new lines of credit and display lower credit scores than individuals who file for bankruptcy. Since bankruptcy filings declined much more for low income individuals, our findings suggest that BAPCPA may have removed an important form of relief from financial distress for this group.

Keywords: foreclosure; insolvency; personal bankruptcy (search for similar items in EconPapers)
JEL-codes: D14 D18 G21 G28 K35 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban
Date: 2015-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10533 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Insolvency After the 2005 Bankruptcy Reform (2018) Downloads
Working Paper: Insolvency after the 2005 Bankruptcy Reform (2016) Downloads
Working Paper: Insolvency after the 2005 bankruptcy reform (2015) Downloads
Working Paper: Insolvency After the 2005 Bankruptcy Reform (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:10533

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... rs/dp.php?dpno=10533

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2019-04-19
Handle: RePEc:cpr:ceprdp:10533