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Consumer Debt Repayment Behavior as a Precursor to Bankruptcy

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Abstract

The passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 culminated years of debate over the escalating number of bankruptcy filings and whether or not consumers were abusing the bankruptcy system. Our study focuses on the extent to which households seek bankruptcy protection without first attempting to restructure their debt or experiencing indicators of financial distress. Through multivariate regression analyses of longitudinal data from the Panel Study of Income Dynamics (PSID), we find a significant relationship between having prior financial problems and filing for bankruptcy. Our results also indicate that households that obtained consolidation loans were equally likely to file for bankruptcy as those that did not. We conclude that early interventions with financially distressed consumers may provide opportunities to reduce bankruptcy filings.

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Notes

  1. While bankruptcy laws vary by state of residence, analyses that controlled for the respondent’s state of residence were not different from results reported here for the variables of interest.

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Authors and Affiliations

  1. Department of Housing and Consumer Economics, University of Georgia, 209 Dawson Hall, Athens, GA, 30602, USA

    Diann C. Moorman

  2. Department of Human Development and Family Studies, Iowa State University, 4380 Palmer Building, Room 2330, Ames, IA, 50011, USA

    Steven Garasky

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  1. Diann C. Moorman
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  2. Steven Garasky
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Correspondence to Steven Garasky.

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Moorman, D.C., Garasky, S. Consumer Debt Repayment Behavior as a Precursor to Bankruptcy. J Fam Econ Iss 29, 219–233 (2008). https://doi.org/10.1007/s10834-008-9103-1

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