Personal Bankruptcy Protection and Household Debt

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ID: 324773
2026
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Abstract
Abstract Increasing personal bankruptcy protection raises consumers’ desire to borrow and lenders’ cost of extending credit; the impact on equilibrium borrowing is ambiguous. Using bankruptcy protection changes between 1999 and 2005 across U.S. states, we find that borrowers respond to greater protection by increasing their unsecured debt. Border county estimates suggest that local economic conditions do not drive these results. Borrowers pay more for protection through higher interest rates, yet delinquency is unaffected. Our results indicate that rising borrower demand outstripped decreasing supply. Increased protections did not reduce the aggregate level of household debt but affected the composition of borrowing. (JEL G00, G33, G51, D14, D18, K35, R2)
Reference Key
openalex_W7202249152 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Felipe Severino, Meta Brown, Rajashri Chakrabarti
Journal review of financial studies
Year 2026
DOI
10.1093/rfs/hhag076
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