Did BAPCPA Deter the Wealthy? The 2005 Bankruptcy Reform’s Effect on Filings Across the Income and Asset Distribution

Abstract

In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) to deter those with means from evading their debts in a Chapter 7 bankruptcy. The law substantially increased the cost to debtors of filing bankruptcy. We use national data gathered at the zip code level to estimate how the law affected debtor filing rates at different income levels and by homeownership. We consider econometric models that account both for observed and unobserved differences across neighborhoods, as well as allow for arbitrary differences in bankruptcy time trends across neighborhoods. Results suggest that the law disproportionately reduced filings among poor neighborhoods by about 32% and that poorer filers also shifted 12% more towards pricier Chapter 13 filings with these effects being exacerbated by differences in homeownership.