Abstract
The characteristics of bankrupt households (such as income and asset levels) vary widely across states. This paper shows that these variations can be attributed to state exemption laws and state garnishment laws. I develop a theoretical model in which households choose between repayment, bankruptcy, and informal bankruptcy (non-repayment without the benefit of the formal bankruptcy process). The model predicts that high asset households have a higher probability of filing for bankruptcy in states with high exemption levels while low income households have a higher probability of filing for bankruptcy in states with high garnishment rates. These predictions are confirmed using a new household level dataset which finds, for example, that households with $225,000 in home equity are 1.7 times more likely to file for bankruptcy in a state with a high exemption level and that households earning less than $10,000 per year are 1.6 times more likely to file for bankruptcy in a state with a high garnishment rate.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
