Personal Bankruptcy: Reconciling Adverse Events and Strategic Filing Hypotheses Using Heterogeneity in Filing Types

Li Gan (), Tarun Sabarwal and Shuoxun Zhang

No 201239, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: Personal bankruptcies have continued to rise even after passage of a comprehensive reform designed to curb strategic use of bankruptcy. We formalize a distinction between strategic filing and adverse events filing by testing whether consumers manipulate their debt and filing decision or not. Test results are consistent with the adverse events hypothesis and are replicated using both PSID and SCF data. Extending the analysis to allow for both types, there is evidence of heterogeneity in filing types, consistent with both hypotheses. On average, approximately 16 percent of households are more likely to behave as strategic types and 84 percent as adverse events types.

Keywords: Consumer bankruptcy; personal bankruptcy; adverse events; strategic filing (search for similar items in EconPapers)
JEL-codes: D12 D14 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2012-10, Revised 2012-10
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Related works:
Working Paper: Personal Bankruptcy: Reconciling Adverse Events and Strategic Timing Hypotheses Using Heterogeneity in Filing Types (2011)
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