Personal Bankruptcy and Credit Supply and Demand

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 benefiting 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 lowasset households are higher in high exemption states.Thus, bankruptcy exemptions redistribute credit toward borrowers with high assets.

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