Who files for bankruptcy? The heterogeneous impact of state laws on a household’s bankruptcy decision
This article examines the heterogeneous impact of state exemption laws and state garnishment laws on bankruptcy. Using a new household-level dataset, my empirical specification simultaneously examines the impact these laws have on a household’s bankruptcy decision as well as a household’s assets and unsecured debts. I find that high exemption laws have a positive impact on bankruptcy and that this effect is increasing in assets. Additionally, I find that high garnishment rates have a positive impact on bankruptcy, which is increasing in income. Moreover, I examine the policy implications of standardizing state exemption laws and state garnishments laws. Understanding the heterogeneous effects of these laws is crucial as they suggest that a household with a given set of financial characteristics will seek bankruptcy relief if it resides in one state but will have to use alternative consumption smoothing measures if it lives in a different state.
Miller, M.M. (2019). Who files for bankruptcy? The heterogeneous impact of state laws on a household’s bankruptcy decision. American Law and Economics Review, 21(2): 247-279. doi: 10.1093/aler/ahz010