Determinants of the consumer bankruptcy decision

  • Domowitz I
  • Sartain R
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Abstract

A financial portrait of households declaring bankruptcy under both Chapters 7 and 13 of the Bankruptcy Code is developed, and compared to the general population. Qualitative choice models of the decision to file for bankruptcy and chapter selection are estimated jointly, combining choice-based sampling techniques with a nested estimation procedure. Medical and credit card debt are found to be the strongest contributors to bankruptcy, with homeownership playing an important role with respect to both and the choice of bankruptcy alternative. The potential effects of legal changes relating to property exemptions and dischargeable debt categories are found to encourage debt repayment through Chapter 13.

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Authors

  • Ian Domowitz

  • Robert L. Sartain

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