Consumer Bankruptcy: A Fresh Start

摘要

Different countries have adopted very different consumer bankruptcy rules. Despite the extensive policy debates on the merits of different bankruptcy laws, there is a lack of models which can quantitatively assess the dynamic effects of the different arrangements. In this paper, we quantitatively analyze the impact of different consumer bankruptcy arrange- ments. We are particularly interested in two features of consumer bankruptcy: the fresh start provision and garnishment levels. The fresh start provision grants debtors a discharge of all debt in return for current assets. This provision thus exempts future income from the claims of creditors. Garnishment rules refer to the fraction of debt that can be seized after default or during bankruptcy proceedings. These features are of particular interest as public debate both in the U.S. and in European countries have focused on the relative merits and optimal levels of these policies. Recent debate in the United States has focused on the question of whether American bankruptcy rules are too lenient. This debate has been motivated by the fact that in recent years, nearly 1 percent of American households have filed annually for discharge of debt under Chapter 7. Moreover, consumer bankruptcies have increased from little more than 1,000 cases per million adults in 1978 to about 5,000 annual filings in 1996. In absolute numbers this is an increase from less than 250,000 cases in 1978 to about 1,250,000 two decades later . This has led to proposed legislation which would make it more diffcult for households to declare bankruptcy.