Consumer Bankruptcy Research Articles

The problem of digital exclusion and the computerization of court proceedings on the example of the institution of consumer bankruptcy

The problem of digital exclusion and the computerization of court proceedings on the example of the institution of consumer bankruptcy

The effect of minimum wages on consumer bankruptcy

We use cross-state differences in minimum wage (MW) levels and county-level consumer bankruptcy rates from 1991–2017 to estimate the effect of changes in minimum wages on consumer bankruptcy. We find that Chapter 7 bankruptcy rates are significantly lower in counties belonging to states with higher MW compared to neighboring counties in the lower MW state: a 10% increase in MW decreases the bankruptcy rate by around 4%. Before the 2005 bankruptcy reform, this effect was almost twice as large as for the entire sample. Theoretically, we cannot sign the effect of MW on bankruptcy and credit utilization; we use a stylized consumption/saving model with default to illustrate the dependence on critical aspects of the model (costs of default, minimum wage levels, and disemployment effects) and to provide intuition on how to interpret our results.

Predicting repeat consumer bankruptcy: A survival analysis of business‐related repeat filings in Australia 2007–2021

AbstractOngoing legislative responses to the impacts of the pandemic have prompted many countries to evaluate whether their bankruptcy systems remain fit for purpose. Moreover, the current climate highlights the importance of data‐driven policy, which the literature identifies as a deficiency of bankruptcy regimes. In Australia, the 2015 reform proposals to reduce the default discharge period from 3 years to 1 year are currently being revised amidst stakeholder concern about potential abuse and repeat bankrupts. Although an extensive body of literature exists on ‘repeat filers’ in the USA, there has been no equivalent study in Australia. Using our data of 153,526 bankruptcies between 2007 and 2021, we conducted a novel application of survival analysis to predict the probability of a repeat bankruptcy comparing business and non‐business groups. The results show that this probability peaked in both male and females with non‐business‐related administrations irrespective of client's age, employment and relationship status. These findings are important as they identify the prospects that certain bankrupt groups have higher rates of repeat bankruptcy, which can inform strategies to improve their survival rate. A significance of our study is the development of a high‐quality longitudinal dataset that facilitates the extension of the data models and allows easy updates about targeted questions involving bankruptcy‐related policy shifts and impacts on sub‐populations. This methodological approach will enable regulators and insolvency experts to address concerns of repeat bankruptcy to guide policy, evaluate reform and extend the evidence base in other jurisdictions.

Consumer Bankruptcy and Unemployment Insurance

Consumer Bankruptcy and Unemployment Insurance

Expediency of the Debt Restructuring Stage in Consumer Bankruptcy

Expediency of the Debt Restructuring Stage in Consumer Bankruptcy

Breaking Bias: A Singular Chapter Solution for Racial Equity in Consumer Bankruptcy

Breaking Bias: A Singular Chapter Solution for Racial Equity in Consumer Bankruptcy

Background risk and consumers' demand for insurance under limited liability

AbstractThis study highlights the importance of financial background risks in consumers' demand for coverage against insurable risks, considering the bankruptcy option. We explore three cases that are overlooked in theoretical literature, although found to be highly relevant in empirical studies: (1) the joint realization of the two financial risks is bankrupting, (2) the insurable risk is bankrupting and the background risk is not, and (3) each financial risk is bankrupting on its own. Our new results highlight the potential role of the background risk in decreasing demand for insurance (and thus insurance take‐up) and yield novel non‐monotonic relationships between the magnitude of the background risk and the demand for insurance coverage, given consumers' initial wealth. Our results align with recent empirical work that highlights the role of consumer bankruptcy as a substitute to formal health insurance, and thereby its significant negative effects on insurance take up among working‐age Americans.

Consumer bankruptcy: Decision, choice and access to credit afterwards

AbstractWe examine the effects of the bankruptcy benefit and adverse events on the consumer bankruptcy decision. Employing zero‐inflated ordered probit models and a unique longitudinal survey of approximately 66,000 individuals in Great Britain, we find that consumers are more likely to enter into bankruptcy proceedings when the bankruptcy benefit increases and when they become unemployed. We find that the effects of adverse events differ across bankruptcy types. Individuals who experience the onset of health problems are more likely to choose reorganization of debts (i.e., income gleaning), whereas individuals who get divorced or separated are more likely to prefer the discharge of debts (i.e., fresh start). We also examine access to credit after bankruptcy. We find that individuals are excluded from the credit markets post‐bankruptcy and the impact differs across bankruptcy types. Credit exclusion for fresh starters is dramatic, swift but short‐lived, while for income gleaners, it is gradual, slow but lasts longer.

The effect of the Affordable Care Act Medicaid expansion on consumer bankruptcies

AbstractMedical expenses have been associated with a large proportion of consumer bankruptcies in the United States. The objective of this study is to examine the relationship between the Medicaid expansion implemented in the context of the Affordable Care Act and consumer bankruptcy, overall and by chapter filing. We used a longitudinal study design with a study period of 2008–2017. We tested three approaches: difference‐in‐differences, fixed effect panel linear regression, and triple difference. We constructed a panel dataset from 2008 to 2017 with states’ data using data from various sources on insurance, bankruptcy filings, and characteristics that may affect bankruptcy, such as income and ethnicity. The outcomes were the annual rates of consumer bankruptcies overall and by chapter at the state level. Between 2008 and 2017, the overall unadjusted bankruptcy filing rate fell from 0.36% to 0.24%. We found that the expansion was associated with a decrease in overall consumer bankruptcy varying between 0.035 and 0.039 percentage points and that the intensity of the effect was modulated by the intensity of the treatment. Results were consistent across models and suggest that the Medicaid expansion had a significant negative effect on overall bankruptcy filings and specifically on Chapter 7 filings.

Conscientiousness and reasonableness in resolving the issue of releasing a citizen from debts in the bankruptcy procedure (statement of the problem)

The article is devoted to finding an answer to the question of what criteria of good faith and reasonableness the behavior of a citizen-debtor must meet in order for him to be released from fulfilling his obligations upon completion of the consumer bankruptcy procedure. The article attempts to answer questions about what conscientiousness and reasonableness are; whether there are clear standards for recognizing a debtor in good faith in a consumer bankruptcy proceeding; what problems does law enforcement practice face after the formulation by the Supreme Court of the Russian Federation of the position that the unreasonableness of the debtor does not mean his bad faith in resolving the issue of releasing him from debts upon completion of the bankruptcy procedure, expressed in the Ruling of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation dated 06/03/2019 № 305-ES18-26429 in case № A41-20557/2016. In particular, the author analyzes extremely topical issues related to the release of a citizen debtor from debts arising from a guarantee for business loans, as well as an assessment of the purpose of attracting credit funds as a tool for analyzing the debtor's good faith.

Consumer Bankruptcy Regimes In Europe

Consumer over-indebtedness has been a problem in Europe especially since the 2008 financial crisis. Legal procedures addressing consumer insolvency were scarce and sporadic prior to 2008, however, legislation have accelerated in most Member States of the European Union in the past fifteen years. In lack of any harmonization in the area of consumer bankruptcy in the EU, Member States, while learning from each other in some instances, established their own procedures and regulatory frameworks. The paper attempts to map the various approaches in addressing consumer over-indebtedness looking for common cores to serve as a base for a future legislation in an EU level. The research follows a comparative method mostly relying on the analysis of the relevant norms in the Member States of the EU also wandering to the territory of the sociology of law. The paper concludes the consumer bankruptcy regimes in Europe can be categorized easily and show similarities mostly in the identification of the vulnerable groups and in the legal consequences of the procedures. This finding proves there is ground for the European Commission to propose legislation, preferably in the form of a directive of the Council and of the European Parliament, to ensure a harmonized approach in the field of consumer bankruptcy procedures.

Потребительское банкротство в практическом преломлении

The article briefly highlights the results of seven years of consumer bankruptcy, analyses the problem of classifying citizens as honest and bona fide debtors. The author considers the practice of refusing to discharge debts due to a significant amount of claims against the debtor or a consistent increase in debt to creditors in the absence of the required level of income, as an independent basis for refusing to discharge debts and comes to the conclusion that the balanced approach proposed by the Supreme Court helps prevent indiscriminate failures. The author examines and highlights key points of the precedent ruling of the Supreme Court on the issues of malicious evasion of repayment of debts.

Consequences of Changes in Consumer Bankruptcy Regulations

The purpose of the article/hypothesis: The aim of the article is to review and present changes to the consumer bankruptcy law and the implications of these changes for individual debtors.
 Methodology: The study deals with the effects of bankruptcy proceedings against individual debtors who do not conduct business activity (remission of bankrupt's liabilities, or at least partial repayment of creditors by the debtors) together with the analysis of changes in the law. It will be used to verify the hypothesis that the liberalization of regulations has resulted in an increase in the number of consumer bankruptcy petitions filed, as well as open bankruptcy proceedings conducted against individual debtors.
 Results of the research: The results of the analysis presented in the paper support the hypothesis that the liberalization of regulations in the area of consumer bankruptcy has resulted in a significant increase in the number of consumer bankruptcy petitions and open bankruptcy proceedings against individual debtors. It seems that as crucial as creating a possibility for the indebted to return to normality in the form of consumer bankruptcy, it is equally important to take care of the sense of equality in this process. It is vital to be aware that consumer debt relief comes at the expense of other market participants – obviously direct creditors but the general public as well.

Update on Consumer Bankruptcy: City of Chicago v. Fulton

Update on Consumer Bankruptcy: City of Chicago v. Fulton

The Housing Bubble and Consumer Bankruptcy (Part 1)

The Housing Bubble and Consumer Bankruptcy (Part 1)

The Housing Bubble and Consumer Bankruptcy (Part 2)

The Housing Bubble and Consumer Bankruptcy (Part 2)

Legal Regulation of Insolvency (Bankruptcy): a Brief Historical Digression

The institution of insolvency (bankruptcy) is known to all modern legal systems, regardless of the specifics of the economic formation. The bankruptcy mechanisms implemented in the Russian Federation are not effective enough, while the number of bankruptcy cases is steadily growing. Further reform of the institution of bankruptcy in the Russian Federation implies the need to study the historical experience of legal regulation of bankruptcy both in foreign countries and in pre-revolutionary Russia. All the main methods of scientific cognition, in particular historical and comparative methods, were used in the preparation of the article. The article examines the origin and evolution of the institution of bankruptcy (bankruptcy law), identifies the beginnings of bankruptcy law in Roman law, touches on its development in the legal systems of Italy, France, Germany, Great Britain, USA, Russia. The concepts of non-payment and insolvency are analyzed, as well as the ratio of the institutions of enforcement proceedings and competition law. Conclusions are formulated about the exclusivity of bankruptcy in terms of economic consequences, the need to distinguish commercial bankruptcy from consumer bankruptcy, the importance of the criterion of good faith in relation to the debtor and creditors.

Ogłoszenie upadłości dłużnika a możliwość przysądzenia własności nieruchomości (lub użytkowania wieczystego). Glosa do uchwały Sądu Najwyższego z dnia 18 listopada 2021 r., III CZP 77/20

Instances of declaring bankruptcy of debtors, including those who do not carry out a business activity (so-called consumer bankruptcy) and who are subject to court enforcement proceedings carried out by a bailiff, are not uncommon in trade practices. As a result, there is a problem of mutual relationship between regulations of the Act of 28 February 2003 of the Bankruptcy Law and regulations of Chapter III of the third part of the Civil Proceedings Code on enforcement proceedings (art. 796 et seq. CPC). The resolution voted on concerned one of such problems. In the resolved matter, the issue was if after the remission of enforcement proceedings against real estate (usufruct) by law (under art. 146(1) of the Bankruptcy Law) as a result of a valid declaration of bankruptcy of a debtor, it is still possible for a court to adjudicate ownership of real estate (or usufruct) in favour of an auction buyer, in the case when a decision on adjudicating became final and binding, before the final declaration of debtor’s bankruptcy was issued, and the buyer fulfilled auction terms and conditions in a timely manner. Keywords: debtor’s bankruptcy, enforcement against real estate (or usufruct), adjudication decision, adjudication of ownership (or usufruct)

The impact of paid sick leave laws on consumer and business bankruptcies

AbstractThis paper examines how missed income due to illness impacts household fragility. Specifically, it shows that paid sick leave laws, which provide households insurance against illness‐related income shocks, reduce consumer bankruptcy. Using a panel dataset at the county‐quarter level, this paper exploits the geographic and temporal variation in the adoption of paid sick leave laws to implement a difference‐in‐differences and event study analysis. It finds that paid sick leave laws reduce consumer bankruptcy filings by approximately 11%; this effect is seen within three quarters of the law's implementation and remains constant in magnitude and significance thereafter. As paid sick leave laws may come at a cost to businesses, this paper also examines the impact of such laws on business bankruptcy filings—it shows that paid sick leave laws have little to no impact on business bankruptcy filings.

Implementing artificial intelligence in forecasting the risk of personal bankruptcies in Poland and Taiwan

Research background: The global financial crisis from 2007 to 2012, the COVID-19 pandemic, and the current war in Ukraine have dramatically increased the risk of consumer bankruptcies worldwide. All three crises negatively impact the financial situation of households due to increased interest rates, inflation rates, volatile exchange rates, and other significant macroeconomic factors. Financial difficulties may arise when the private person is unable to maintain a habitual standard of living. This means that anyone can become financially vulnerable regardless of wealth or education level. Therefore, forecasting consumer bankruptcy risk has received increasing scientific and public attention. Purpose of the article: This study proposes artificial intelligence solutions to address the increased importance of the personal bankruptcy phenomenon and the growing need for reliable forecasting models. The objective of this paper is to develop six models for forecasting personal bankruptcies in Poland and Taiwan with the use of three soft-computing techniques. Methods: Six models were developed to forecast the risk of insolvency: three for Polish households and three for Taiwanese consumers, using fuzzy sets, genetic algorithms, and artificial neural networks. This research relied on four samples. Two were learning samples (one for each country), and two were testing samples, also one for each country separately. Both testing samples contain 500 bankrupt and 500 nonbankrupt households, while each learning sample consists of 100 insolvent and 100 solvent natural persons. Findings & value added: This study presents a solution for effective bankruptcy risk forecasting by implementing both highly effective and usable methods and proposes a new type of ratios that combine the evaluated consumers? financial and demographic characteristics. The usage of such ratios also improves the versatility of the presented models, as they are not denominated in monetary value or strictly in demographic units. This would be limited to use in only one country but can be widely used in other regions of the world.