An Optimal Personal Bankruptcy Procedure and Proposed Reform
H.J. Wang and
Authors registered in the RePEc Author Service: Heng Wang and
Hung-Jen Wang ()
Working Papers from Michigan - Center for Research on Economic & Social Theory
We investigate a proposed reform of U.S. personal bankruptcy law which combines Chapters 7 and 13. The proposed reform obliges debtors in bankruptcy to use part of both their wealth and their future earnings to repay debt and therefore bases the obliga- tion to repay in bankruptcy on debtors' ability-to-pay. An important function of personal bankruptcy is to provide partial wealth insurance for risk averse debtors by discharg- ing some debt when debtors' ability to repay turns out to be low. However the current bankruptcy system encourages debtors to le for bankruptcy even when their ability to repay is high. The proposed reform maintains the insurance function of bankruptcy, but reduces debtors' incentive to take advantage of the system. Using simulation techniques, we show that the reform improves eciency relative to the current system.
Keywords: BANKRUPTCY; LAW (search for similar items in EconPapers)
JEL-codes: K10 K12 (search for similar items in EconPapers)
Pages: 30 pages
References: Add references at CitEc
Citations: View citations in EconPapers (30) Track citations by RSS feed
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
Journal Article: An Optimal Personal Bankruptcy Procedure and Proposed Reforms (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fth:michet:98-07
Access Statistics for this paper
More papers in Working Papers from Michigan - Center for Research on Economic & Social Theory UNIVERSITY OF MICHIGAN, DEPARTMENT OF ECONOMICS CENTER FOR RESEARCH ON ECONOMIC AND SOCIAL THEORY, ANN ARBOR MICHIGAN U.S.A..
Bibliographic data for series maintained by Thomas Krichel ().