Consumer Bankruptcy: A Fresh Start

By Igor Livshits, James Macgee, Michèle Tertilt. 2007

534 citations recorded by the source corpus.

Consumer bankruptcy provides partial insurance against bad luck, but, by driving up interest rates, makes life-cycle smoothing more difficult. We argue that to assess this trade-off one needs a quantitative model of consumer bankruptcy with three key features: life-cycle component, idiosyncratic earnings uncertainty, and expense uncertainty (exogenous negative shocks to household balance sheets). We find that transitory and persistent earnings shocks have very different implications for evaluating bankruptcy rules. More persistent shocks make the bankruptcy option more desirable. Larger transitory shocks have the opposite effect. Our findings suggest the current US bankruptcy system may be desirable for reasonable parameter values. (JEL D14, D91, K35)

Subfields: Accounting, Demography, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/d2c56ed9e435918f601d46a50a5fffa0db189ed1

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Citations in the corpus

Debt Dilution and Sovereign Default Risk (2011, unknown): “Second, in some markets debt contracts include covenants intended to limit debt dilution (see Smith and Warner (1979) and Rodgers (1965) for a discussion of debt covenants in corporate debt markets).”
Moving Back Home: Insurance against Labor Market Risk (2012, background): “…2010); (v) the literature that studies the effects of “real-world” channels on consumption, which includes Fernandez-Villaverde and Krueger (2002) (durable consumption goods), Low (2005) and Kaplan (2011) (variable labor supply), and Livshits, MacGee, and Tertilt (2007) (bankruptcy protection).”
Quantitative Properties of Sovereign Default Models: Solution Methods Matter (2010, methodology): “The model used in these studies also share blueprints with the models used in quantitative studies of household bankruptcy—see, for example, Athreya (2002), Chatterjee et al. (2007), Li and Sarte (2006), and Livshits et al. (2008).”
Inequality, Leverage and Crises: The Case of Endogenous Default (2013, unknown): “This mechanism is consistent with the results of Midrigan and Philippon (2011), who show that U.”
The Distribution of Debt Across Euro Area Countries: The Role of Individual Characteristics, Institutions and Credit Conditions (2013, background): “[29] Livshits I.”
The Nature of Credit Constraints and Human Capital. NBER Working Paper No. 13912. (2008, unknown): “Our assumed punishments for default are similar to those employed by Livshits, MacGee, and Tertilt (2007) in their analysis of bankruptcy over the lifecycle.”
The Distributive Impact of Reforms in Credit Enforcement: Evidence from Indian Debt Recovery Tribunals (2010, background): “Livshits et al. (2007) and Chatterjee et al.(2007) and also Vig (2007). See also Perri (2007) for a discussion of limited enforcement constraints and the interaction with contingent vs.”
Long-Duration Bonds and Sovereign Defaults (Revised July 2009) (2009, background): “…of household bankruptcy—see, for example, Athreya (2002), Athreya et al. (2007a,b), Chatterjee et al. (2007a), Chatterjee et al. (2007b), Li and Sarte (2006), Livshits et al. (2008), and Sánchez (2008). ernment issues bonds that pay an infinite stream of coupons until a default is declared.”