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Bankruptcy Reform, Credit Availability, and Financial Distress

Author

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  • Hamid Boustanifar

Abstract

This paper shows that in the United States the pro-creditor personal bankruptcy reform of 2005 led to a significant increase in access to, and volume of, credit for households. The paper documents the heterogeneous effects of increased credit access depending on household characteristics. While credit-constrained households were better off following the reform, households with low education and those with self-control problems appear to be negatively affected as a result of over-borrowing. The latter group experienced a significantly larger deterioration in financial health in the following years. Overall, the results highlight the real cost of credit availability for a subgroup of vulnerable households and has implications for the design of personal bankruptcy laws.

Suggested Citation

  • Hamid Boustanifar, 2022. "Bankruptcy Reform, Credit Availability, and Financial Distress," Finance, Presses universitaires de Grenoble, vol. 43(3), pages 159-220.
    • Handle: RePEc:cai:finpug:fina_pr_007
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