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Title:The Bankruptcy Abuse Prevention and Consumer Protection Act: Means-testing or mean spirited? PDF Logo
Authors:Ashcraft, Adam B.
Dick, Astrid A.
Morgan, Donald P.
Issue Date:2007
Series/Report no.:Staff Report, Federal Reserve Bank of New York 279
Abstract:Thousands of U.S. households filed for bankruptcy just before the bankruptcy law changed in 2005. That rush-to-file was more pronounced, we find, in states with more generous bankruptcy exemptions and lower credit scores. We take that finding as evidence that the new law effectively reduces exemptions, which in turn should reduce the “demand” for bankruptcy and the resulting losses to suppliers of consumer credit. We expect the savings to suppliers will be shared with borrowers by way of lower credit card rates, although credit card spreads have not yet fallen. If cheaper credit is the upside of the new law, the downside is reduced bankruptcy “insurance” against bad luck. The overall impact of the new law on the average household depends on how one weighs those two sides.
Subjects:personal bankruptcy, consumption smoothing, insurance, competition
JEL:G33
K35
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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