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Incentives and Bankruptcy Chapter Choice: Evidence from the Reform Act of 1978

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  • Domowitz, Ian
  • Sartain, Robert L

Abstract

We ask whether new incentives embedded in a major legal change have their anticipated effect on personal bankruptcy chapter choice. The evidence is based on data at the level of the household shortly before and after enactment of the Bankruptcy Reform Act of 1978. Structural chapter choice models predict a substantial portion of the increase in the proportion of reorganizational filings. Statistical testing confirms a shift in behavior across legal regimes. The sources promoting the increased incidence of reorganizational filings traceable to the law lie in cost effects, changes in eligibility requirements across chapters, differences in categories of dischargeable debt, and increased equity protection. Legal shifts in incentives change behavior but do so substantively only when relatively large amounts of money are at stake. Copyright 1999 by the University of Chicago.

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  • Domowitz, Ian & Sartain, Robert L, 1999. "Incentives and Bankruptcy Chapter Choice: Evidence from the Reform Act of 1978," The Journal of Legal Studies, University of Chicago Press, vol. 28(2), pages 461-487, June.
    • Handle: RePEc:ucp:jlstud:v:28:y:1999:i:2:p:461-87
    DOI: 10.1086/468058
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    Cited by:

    1. Benjamin B Boozer & S. Keith Lowe & Robert J. Landry III, 2014. "Personal Financial Decisions: A Study of Changes in Homestead Exemption Levels and Consumer Bankruptcy Choices," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(4), pages 17-26.
    2. Barry Adler & Ben Polak & Alan Schwartz, 1999. "Regulating Consumer Bankruptcy: A Theoretical Inquiry," Yale School of Management Working Papers ysm128, Yale School of Management, revised 01 Jul 2000.
    3. Edward J. Bird & Paul A. Hagstrom & Robert Wild & Janet A. Weiss, 1999. "Credit card debts of the poor: High and rising," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 18(1), pages 125-133.

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