FEDSPEAK: The Causes of Household Bankruptcy – The Interaction of Income Shocks and Balance Sheets

Bankruptcy

The Causes of Household Bankruptcy: The Interaction of Income Shocks and Balance Sheets

Abstract

We examine how household balance sheets and income statements interact to affect bankruptcy decisions following an exogenous income shock. For identification, we exploit government payments in one but not any other Canadian province that varied exogenously based on family size. Receiving a larger income shock from the payment (relative to household income) reduces the count of bankruptcies, with fewer remaining filers having higher net balance sheet benefits of bankruptcy (unsecured debt discharged minus liquidated assets forgone). Receiving an income shock thus causes households that would receive lower net balance sheet benefits under bankruptcy law to select out of bankruptcy.

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Comments
One Response to “FEDSPEAK: The Causes of Household Bankruptcy – The Interaction of Income Shocks and Balance Sheets”
  1. Juan Reynoso says:

    Neoliberalism is the evil political-economic system that demised the economic and welfare of the working people.

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