The economic consequences of bankruptcy reform

Tal Gross, Raymond Kluender, Feng Liu, Matthew J. Notowidigdo, Jialan Wang

Research output: Contribution to journalArticlepeer-review

Abstract

A more generous consumer bankruptcy system provides greater insurance against financial risks but may also raise the cost of credit. We study this trade- off using the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which increased the costs of filing for bankruptcy. We identify the effects of BAPCPA on borrowing costs using variation in the effects of the reform across credit scores. We find that a one- percentage-point reduction in bankruptcy filing risk decreased credit card interest rates by 70-90 basis points. Conversely, BAPCPA reduced the insurance value of bankruptcy, with uninsured hospitalizations 70 percent less likely to obtain bankruptcy relief after the reform.

Original languageEnglish (US)
Pages (from-to)2309-2341
Number of pages33
JournalAmerican Economic Review
Volume111
Issue number7
DOIs
StatePublished - Jul 2021

ASJC Scopus subject areas

  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'The economic consequences of bankruptcy reform'. Together they form a unique fingerprint.

Cite this