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Consumer Bankruptcy and Financial Health

Will Dobbie1; Paul Goldsmith-Pinkham2; Crystal S. Yang3

1 Princeton University and NBER · 2 Federal Reserve Bank of New York · 3 Harvard Law School and NBER

The Review of Economics and Statistics 2017 open access

This paper estimates the effect of Chapter 13 bankruptcy protection on financial health using a new data set linking bankruptcy filings to credit bureau records. Our empirical strategy uses the leniency of randomly assigned judges as an instrument for Chapter 13 protection. We find that Chapter 13 protection decreases an index measuring adverse financial events such as civil judgments and repossessions by 0.323 standard deviations and increases the probability of being a homeowner by 13.2 percentage points. Chapter 13 protection has little impact on open unsecured debt but decreases the amount of debt in collections by $1,333.

DOI
10.1162/rest_a_00669
Volume
99 (5)
Pages
853-869
Language
en
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