Realities of U.S. Personal Bankruptcy under Chapter 13

摘要

In this paper, we first present three main findings on the performance of consumer bankruptcy under Chapter 13 using a unique dataset based on information obtained from court docket records filed between 2001 and 2002 in the state of Delaware. First, the median creditor recovery rate is actually zero under Chapter 13 both for secured and unsecured debt. Second, close to twenty percent of filers are dismissed without ever obtaining confirmation of even one plan. Third, less than forty percent of debtors actually receive a financial fresh start by having their debts discharged. To account for these stylized facts, we then build a theoretical model of bankruptcy under Chapter 13. In the model, debtors make decisions regarding payment plan length as well as whether to stay in Chapter 13 after receiving shocks to their ability to repay. Structural estimations of the model highlight important trade offs between proposing a long plan versus a short one. A longer plan is costly in that debtors have to repay more under the plan, but it is more likely to be confirmed by the trustee. We also found that wage orders are important commitmment as well as enforcement devices that enure the success of Chapter 13 repayment plans. Finally, there exists substantial uncertainty regarding debtors payment ability that account for the failure and consequent low payment rate of many Chapter 13 cases.