Consumer Bankruptcy: A Fresh Start

Abstract

American consumer bankruptcy provides for a Fresh Start through the discharge of a household's debt.Until recently, many European countries specified a No Fresh Start policy of life-long liability for debt.The trade-off between these two policies is that while Fresh Start provides insurance across states, it drives up interest rates and thereby makes life-cycle smoothing more difficult.This paper quantitatively compares these bankruptcy rules using a life-cycle model with incomplete markets calibrated to the U.S. and Germany.A key innovation is that households face idiosyncratic uncertainty about their net asset holdings (expense shocks) and labor income.We find that expense uncertainty plays a key role in evaluating consumer bankruptcy laws.

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 — 101 citations exist upstream.

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