Consumption, Debt and Portfolio Choice: Testing the Effect of Bankruptcy Law

Abstract

Consumer bankruptcy laws, which vary across states and over time, permit debtors to keep assets below a statutory exemption while debts are forgiven. High exemptions distort household portfolio decisions and tempt households to default on debts; but they also provide a crude form of consumption insurance. We combine information on state-level bankruptcy laws with the Consumer Expenditure Survey from 1984--1999. We find that higher exemptions are associated with (1) Higher bankruptcy rates, (2) Households that are more likely to simultaneously hold low-return liquid assets and owe high-cost unsecured debt, and (3) Better insurance for renters and worse insurance for homeowners.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 29 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.