The Economic Consequences of Bankruptcy Reform

Tal Gross, Raymond Kluender, Feng Liu, Matthew Notowidigdo and Jialan Wang

No 26254, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A more generous consumer bankruptcy system provides greater insurance against financial risks, but it may also raise the cost of credit to consumers. We study this trade-off using the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which raised the costs of filing for bankruptcy. We identify the effects of BAPCPA on borrowing costs by exploiting variation in the effects of the reform on bankruptcy risk across credit-score segments. Using a combination of administrative records, credit reports, and proprietary market-research data, we find that the reform reduced bankruptcy filings, and reduced the likelihood that an uninsured hospitalization received bankruptcy relief by 70 percent. BAPCPA led to a decrease in credit card interest rates, with an implied pass-through rate of 60–75 percent. Overall, BAPCPA decreased the gap in offered interest rates between prime and subprime consumers by roughly 10 percent.

JEL-codes: D14 G21 G28 K35 L13 (search for similar items in EconPapers)
Date: 2019-09
New Economics Papers: this item is included in nep-ban, nep-ias and nep-law
Note: CF LE
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Citations: View citations in EconPapers (5)

Published as Tal Gross & Raymond Kluender & Feng Liu & Matthew J. Notowidigdo & Jialan Wang, 2021. "The Economic Consequences of Bankruptcy Reform," American Economic Review, vol 111(7), pages 2309-2341.

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Journal Article: The Economic Consequences of Bankruptcy Reform (2021)
Working Paper: The Economic Consequences of Bankruptcy Reform (2020)
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