Abstract
Increasing personal bankruptcy protection can increase credit demand while reducing borrowers’ access to credit. Using changes in bankruptcy protection across US states over time, we show that these laws increase borrowers’ holdings of unsecured credit, but not secured debt. We also find an increased interest rate for unsecured credit only. These effects are driven by home owners in lower-income areas. We find on average no measurable increase in delinquency rates of households in the subsequent three years. These results suggest that increased bankruptcy protections did not reduce the aggregate level of household debt, but affected the composition of borrowing.
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