Personal Bankruptcy and Credit Supply and Demand

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 policy-makers as benefiting less-well-off borrowers, our results using data from the 1983 Survey of Consumer Finances suggest that 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. Thus, bankruptcy exemptions redistribute credit toward borrowers with high assets. Interest rates on automobile loans for low-asset households also appear to be higher in high exemption states.

01. February 1997

Authors Reint E. Gropp J. K. Scholz M. J. White

Whom to contact

For Researchers

For Journalists

Mitglied der Leibniz-Gemeinschaft LogoTotal-Equality-LogoSupported by the BMWK