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"CHAPTER 7"
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The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization
Our paper explores a comprehensive sample of small and large corporate bankruptcies in Arizona and New York from 1995 to 2001. Bankruptcy costs are very heterogeneous and sensitive to the measurement method used. We find that Chapter 7 liquidations appear to be no faster or cheaper (in terms of direct expense) than Chapter 11 reorganizations. However, Chapter 11 seems to preserve assets better, thereby allowing creditors to recover relatively more. Our paper also provides a large number of further empirical regularities.
Journal Article
LIQUIDITY CONSTRAINTS AND CONSUMER BANKRUPTCY: EVIDENCE FROM TAX REBATES
We estimate the extent to which legal and administrative fees prevent liquidity-constrained households from declaring bankruptcy. To do so, we study how the 2001 and 2008 tax rebates affected consumer bankruptcy filings. We exploit the randomized timing of the rebate checks and estimate that the rebates caused a significant short-run increase in consumer bankruptcies in both years, with larger effects in 2008 when the rebates were more generous and more widely distributed. Using hand-collected data from individual bankruptcy petitions, we document that households that filed shortly after receiving their rebate checks had higher average liabilities and liabilities-to-income ratios.
Journal Article
Psychotic disorders comorbid with attention-deficit hyperactivity disorder: an important knowledge gap
Psychotic disorders (PDs) and attention-deficit hyperactivity disorder (ADHD) are frequently comorbid. Clinicians are often reticent to treat ADHD in patients with psychosis, fearing that psychostimulants will worsen psychotic symptoms. Advances in neurobiology have challenged the simplistic dichotomy where PD is considered a disorder of high dopamine (DA), treated by DA antagonists, and ADHD a disorder of low DA, treated by DA agonists. In our paper, we review the literature on comorbid ADHD and psychosis. Treating ADHD with psychostimulants may be considered in patients with PD who have been stabilized with antipsychotics (APs). Not treating ADHD may have consequences because ADHD may predispose patients to drug abuse, which further increases the risk of PD. Nevertheless, more systematic studies are needed as there remains some uncertainty on the combined use of APs and psychostimulants in comorbid PD and ADHD.
Journal Article
The Household Bankruptcy Decision
New data is used from the Panel Study of Income Dynamics, which includes information on bankruptcy filings, to estimate a model of households' bankruptcy decisions. Support is found for the strategic model of bankruptcy, which predicts that households are more likely to file when their financial benefit from filing is higher. The model predicts that an increase of $1,000 in households' financial benefit from bankruptcy would result in a 7% increase in the number of bankruptcy filings.
Journal Article
Explaining the Puzzle of Cross‐State Differences in Bankruptcy Rates
Bankruptcy rates vary tremendously across states, and it is not obvious why. The number of candidate explanations is large relative to the number of states. To overcome this problem, we use zip‐code‐level data to identify the importance of demographic variables using within‐state variation. This preserves state‐level degrees of freedom to identify the impact of state policy variables. Demographics, wage garnishment restrictions, and the fraction of bankruptcies filed under Chapter 13 explain 70 percent of the variation in filing rates across states. Exemption rates, size of public safety nets, and payday loan regulations contribute virtually nothing to the cross‐state variance in filing rates. Our findings suggest that state bankruptcy rates reflect the relative costs of filing for formal bankruptcy versus informal default. States without effective wage garnishment provisions allow easy informal default. Furthermore, repayment plans mandated under Chapter 13 bankruptcy often lead to repeated bankruptcy filings.
Journal Article
Did Bankruptcy Reform Cause Mortgage Defaults to Rise?
Homeowners in financial distress can use bankruptcy to avoid defaulting on their mortgages, since filing loosens their budget constraints. But the 2005 bankruptcy reform made bankruptcy less favorable to homeowners and therefore caused mortgage defaults to rise. We test this relationship and find that the reform caused prime and subprime mortgage default rates to rise by 23% and 14%, respectively. Default rates rose even more for homeowners who were particularly negatively affected by the reform. We calculate that bankruptcy reform caused mortgage default rates to rise by one percentage point even before the start of the financial crisis.
Journal Article
On the Social Costs of Bankruptcy: Can the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 be an Effective Policy?
The goal of BAPCPA is to shift bankruptcy filers from Chapter 7 to Chapter 13. The basis for this goal is the assumption that Chapter 7 filers repay much less of their debt than do Chapter 13 filers. Therefore, shifting debtors from Chapter 7 to Chapter 13 will increase debt repayment and lessen the amount of bankruptcy costs shifted to society as a whole. In order for this reasoning to be valid, it is necessary to substantiate the claim that Chapter 13 actually leads to substantial debt repayment. This paper examines the validity of this assumption using a random sample of filers from the Eastern Washington U.S. Federal Bankruptcy Court District in 2003 and 2005. The authors find that filers do, indeed, repay a substantial portion of their debts. This suggests that Chapter 13 is effective in generating debt repayment. However, Chapter 13 repayments also create major administrative costs, and frequently provide little benefit to general unsecured creditors. Moreover, the effectiveness of Chapter 13 bankruptcies is substantially reduced (by nearly a 2.5 to 1 ratio) if debtors do not successfully complete the repayment plans. As such, BAPCPA appears to miss an opportunity to further reduce the social costs of bankruptcy.
Journal Article