Working Paper: NBER ID: w5653
Authors: Reint Gropp; John Karl Scholz; Michelle White
Abstract: This paper examines how personal bankruptcy and bankruptcy exemptions affect the supply and demand for credit. While generous state-level bankruptcy exemptions are probably viewed by most policymakers as benefitting less-well-off borrowers, our results using data from the 1983 Survey of Consumer Finances suggest they increase the amount of credit held by high-asset households and reduce the availability and amount of credit to low-asset households, conditioning on observable characteristics. We also find evidence that interest rates on automobile loans for low-asset households are higher in high exemption states. Thus, bankruptcy exemptions redistribute credit toward borrowers with high assets.
Keywords: bankruptcy; credit supply; credit demand; bankruptcy exemptions
JEL Codes: G21; K35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher bankruptcy exemptions (K35) | Increased filings (K35) |
| Higher bankruptcy exemptions (K35) | Increased credit demand among high-asset households (G51) |
| Higher bankruptcy exemptions (K35) | Reduced credit availability for low-asset households (G51) |
| Higher bankruptcy exemptions (K35) | Higher interest rates on automobile loans for low-asset households (G51) |
| Increased filings (K35) | Affects lenders' willingness to supply credit (G21) |
| Higher bankruptcy exemptions (K35) | Increased probability of households being turned down for credit (G51) |