Gulf property damage, housing price trends and US bankruptcy filings

Abstract

PurposeThis paper aims to examine potential causes of bankruptcy as they relate to hurricane damage. Investigate whether hurricanes result in personal bankruptcy filings due to real property damages. Strengthen existing descriptive results by using fully modified ordinary least squares (FMOLS).Design/methodology/approachLagged FMOLS model is used with data from states that suffered hurricane damage between 2000 through 2020. FMOLS controls for various financial distresses that can cause bankruptcy filings.FindingsBankruptcy is usually filed for within one year of a hurricane. Changes in house prices and hurricane severity were significant indicators of bankruptcy filings. However, the divorce rate, commonly thought of as a primary reason for bankruptcy, is insignificant.Research limitations/implicationsData was available on a state level for the independent variables. Hurricane damage needed to be financially significant enough for inland flooding to be measurable and influential.Practical implicationsEstablishes that financial distress comes from several sources, not just home damage. Financial distress is highly correlated with whether a home was insured. Divorce does not cause bankruptcy filings.Social implicationsFederal flood insurance programs should be reexamined. Having a broader all-risk homeowner policy could reduce the number of households that file for bankruptcy after a hurricane.Originality/valueExisting research uses descriptive statistics and obtains mixed findings regarding the association between hurricane damage and bankruptcy filings. The FMOLS approach provides clarity about this association.