Abstract

Coping with Adversity: Personal Bankruptcy Decisions of Lower-Income Homeowners Before and After Bankruptcy Reform  [PDF]
Authors: Mark Lindblad, Roberto G. Quercia, Sarah F. Riley, Melissa B. Jacoby, Tianji Cai, Ling Wang, and Kim Manturuk
Working Paper, April 2011

We examine whether adverse life events influence the personal bankruptcy decisions of lower-income households. Econometric studies suggest that personal bankruptcy is explained by the financial benefit of filing rather than adverse events, but data constraints have hindered a comprehensive test of the adverse events hypothesis. We address this gap with household level panel data collected over the past decade. Using event history analysis and controlling for the financial benefit of filing, we find that stressors related to monthly cash flow, unexpected expenses, unemployment, health insurance coverage, medical bills, and mortgage delinquencies predict bankruptcy filings a year later.  At the federal level, the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act explains a decrease in filings over time in counties that experienced lower filing rates.