On the Rationale for Repeated U.S. Consumer Bankruptcy Filings

Abstract

A theoretical model of U.S. consumer behavior is developed which allows the consumer to file for bankruptcy protection at different points, and on multiple occasions, over her lifespan. The model allows for conspicuous consumption, hyperbolic discounting, and random budget shocks. Findings suggest that individuals who file for bankruptcy protection multiple times may be better or worse off than those who file only once. However, repeat filers present with much more skewed consumption patterns, and evidence of much higher overspending at the time of filing, than individuals who have never filed for bankruptcy or who file for the first time. Keywords: consumer bankruptcy, financial epidemiology, conspicuous consumption