Floridian bankruptcies and local property damage in the United States

Abstract

PurposeThis study aims to examine the linkage between bankruptcy filings and hurricane events. Several independent variables related to local district court bankruptcy filings are examined. The primary question posed is whether Category 3,4 and 5 hurricanes result in personal bankruptcy filings due to the real property and other damage that ensures.Design/methodology/approachLandfall hurricanes in Florida from 2001 through 2018 were examined by using the fully modified least square regression model. Descriptive statistics include elasticity measures that show statistics prior and post the passage of the Bankruptcy Abuse and Prevent and Consumer Protection Act of 2005 (BAPCPA).FindingsThe elasticity of housing prices was a useful statistic in explaining bankruptcy filings. Regression results indicate that bankruptcy filing occur within one year of a serious hurricane. The regression model found hurricane events and housing price trends were significant variable when predicting district court bankruptcy filings.Practical implicationsBAPCPA targets fraud under Chapter 7 bankruptcy filings. Unfortunately, this also had the unintended consequence of discouraging legitimated filings due to the lowering of the marginal benefit associated with filing when the “means test” is applied.Social implicationsLack of flood insurance coverage and stagnant real estate prices could limit the desirability of filing under Chapter 13 resulting in an inventory of damaged properties being foreclosed.Originality/valuePrior researchers relied on a descriptive approach by using percentage rates to quantify the association between hurricane damage and bankruptcy filings. By using the fully modified regression-based approach, the study herein establishes that filings occur approximately a year after the household experiences the real property loss and identifies other casual factors that influence the decision to file.