The Causes of Household Bankruptcy: The Interaction of Income Shocks and Balance Sheets

Vyacheslav Mikhed and Barry Scholnick

No 16-19, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We examine how household balance sheets and income statements interact to affect bankruptcy decisions following an exogenous income shock. For identification, we exploit government payments in one but not any other Canadian province that varied exogenously based on family size. Receiving a larger income shock from the payment (relative to household income) reduces the count of bankruptcies, with fewer remaining filers having higher net balance sheet benefits of bankruptcy (unsecured debt discharged minus liquidated assets forgone). Receiving an income shock thus causes households that would receive lower net balance sheet benefits under bankruptcy law to select out of bankruptcy.

Keywords: Household Bankruptcy; income shocks; Balance Sheet (search for similar items in EconPapers)
JEL-codes: D41 H31 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2016-07-15
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (1)

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