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Insolvency After the 2005 Bankruptcy Reform

Stefania Albanesi () and Jaromir Nosal

No 24934, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) is the most important reform of personal bankruptcy in the United States in recent years. This legislation overhauled eligibility requirements and increased monetary costs of filing for bankruptcy. Using administrative credit file data from a nationally representative panel, we quantify the effects of the reform on bankruptcy, insolvency, and foreclosure, we explore the mechanism generating these responses and examine the consequences for households. We find that the reform caused a 50% permanent drop in Chapter 7 filings, a 25% permanent rise in insolvency, but had no effect on Chapter 13 filings. Exploiting the cross-district variation in filing costs resulting from the reform, we show that these responses are driven by liquidity constraints associated with the higher monetary cost of filing for bankruptcy. We show that insolvency is associated with worse outcomes than bankruptcy, in terms of access to credit and credit scores, suggesting that BAPCPA may have removed an important form of relief for financially distressed borrowers.

JEL-codes: E21 E49 G18 K35 (search for similar items in EconPapers)
Date: 2018-08
New Economics Papers: this item is included in nep-ban and nep-mac
Note: EFG PE
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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
Working Paper: Insolvency After the 2005 Bankruptcy Reform (2015) Downloads
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