Mortgage Finance, Bankruptcy, Mortgage Default & Foreclosure
Working Paper | April 2011

Coping with Adversity: Personal Bankruptcy Decisions of Lower-Income Homeowners Before and After Bankruptcy Reform

Mark R. Lindblad, Roberto G. Quercia, Sarah F. Riley, Melissa Jacoby, Tianji Cai, Ling Wang, Kim Manturuk

Center researchers find that adverse life events, such as unemployment, unexpected expenses and medical bills, are the primary reasons that lower-income households decide to file for bankruptcy.

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UNC Center for Community Capital researchers examine whether adverse life events influence the personal bankruptcy decisions of lower-income homeowners. Econometric studies suggest that personal bankruptcy is explained by financial gain rather than adverse events, but data constraints have hindered tests of the adverse events hypothesis.

Using household level panel data and controlling for the financial benefit of filing, we find that stressors related to cash flow, unexpected expenses, unemployment, health insurance coverage, medical bills, and mortgage delinquencies predict bankruptcy filings a year later.

At the federal level, the 2005 Bankruptcy Reform explains a decrease in filings over time in counties that experienced lower filing rates.

The UNC Center for Community Capital conducts research and policy analysis on ways to make financial services work better for more people and communities.


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