Consumer bankruptcy: decision, choice and access to credit afterwards
We examine the effects of the bankruptcy benefit and adverse events on the consumer bankruptcy decision. Employing zero-inflated ordered probit models and a unique longitudinal survey of approximately 66,000 individuals in Great Britain, we find that consumers are more likely to enter into bankruptcy proceedings when the bankruptcy benefit increases and when they become unemployed. We find that the effects of adverse events differ across bankruptcy types. Individuals who experience the onset of health problems are more likely to choose reorganisation of debts (i.e., income gleaning), whereas individuals who get divorced or separated are more likely to prefer the discharge of debts (i.e., fresh start). We also examine access to credit after bankruptcy. We find that individuals are excluded from the credit markets post-bankruptcy and the impact differs across bankruptcy types. Credit exclusion for fresh starters is dramatic, swift but short-lived, while for income gleaners, it is gradual, slow but lasts longer.
- Loughborough Business School
Published inInternational Journal of Finance and Economics
- VoR (Version of Record)
Rights holder© The Authors
Publisher statementThis is an Open Access Article. It is published by Wiley under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence (CC BY-NC-ND). Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/