Abstract
We document recent international changes in bankruptcy law pertaining to personal liabilities. Implications are investigated within a theoretical model, focusing on interest rates, employment, and bankruptcy incidence. Our abstraction of bankruptcy law covers issues of eligibility, debt discharge, the role of gatekeepers to the formal court system, and the ambiguities stemming from judicial difficulty in applying objective standards or from pre-court negotiations. Employment rises as bankruptcy law becomes more stringent, but interest rates also may increase. A tightening of bankruptcy law may not decrease bankruptcy probabilities, except in the stark case of no debt discharge. Strict rules pertaining to debt repayment are desirable, as opposed to court or pre-court discretion. Pending international agreements with respect to cross-border insolvency may lower interest rates, but do not necessarily imply a decrease in bankruptcy incidence. The sensitivity of results with respect to different firm ownership structures is investigated.
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