This paper examines the implicit health insurance that households receive from the ability to declare bankruptcy. Exploiting multiple sources of variation in asset exemption law, I show that ...uninsured households with a greater financial cost of bankruptcy make higher out-of-pocket medical payments, conditional on the amount of care received. In turn, I find that households with greater wealth at risk are more likely to hold health insurance. The implicit insurance from bankruptcy distorts the insurance coverage decision. Using a microsimulation model, I calculate that the optimal Pigovian penalties are three-quarters as large as the average penalties under the Affordable Care Act.
Using a sample of small firms that defaulted on their bank debt in France, Germany, and the United Kingdom, we find that large differences in creditors' rights across countries lead banks to adjust ...their lending and reorganization practices to mitigate costly aspects of bankruptcy law. In particular, French banks respond to a creditor-unfriendly code by requiring more collateral than lenders elsewhere, and by relying on collateral forms that minimize the statutory dilution of their claims in bankruptcy. Despite such adjustments, bank recovery rates in default remain sharply different across the three countries, reflecting very different levels of creditor protection.
Friends with bankruptcy protection benefits Kleiner, Kristoph; Stoffman, Noah; Yonker, Scott E.
Journal of financial economics,
02/2021, Volume:
139, Issue:
2
Journal Article
Peer reviewed
We show information spillovers limit the effectiveness of targeted debt relief programs. We study individuals who learn about the likelihood of debt relief from the recent experiences of workplace ...peers filing for bankruptcy protection. Peers granted bankruptcy can discharge debts, while peers facing dismissal lose all protections. Exploiting the random assignment of judges to bankruptcy cases, we determine that individuals with a “dismissed peer” are significantly less likely to file for bankruptcy or enter foreclosure. We highlight a novel channel relating social networks to household finances and identify additional costs of granting individual debt relief imposed on lenders.
Stigma attached to bankruptcy - historical background - objectives of Australian bankruptcy law to reduce stigma - recent efforts in the UK to address bankruptcy stigma through legislation - factors ...undermining this effort.
Literature review on stigma and relevance for status of being or having been bankrupt - examples of labelling as bankrupt facilitates stigmatisation when seeking employment - why the reinforcement of ...bankruptcy stigma matters - suggestions to promote fresh start objective of the Australian bankruptcy system - rehabilitative effect.
Abstract Background Our 2001 study in 5 states found that medical problems contributed to at least 46.2% of all bankruptcies. Since then, health costs and the numbers of un- and underinsured have ...increased, and bankruptcy laws have tightened. Methods We surveyed a random national sample of 2314 bankruptcy filers in 2007, abstracted their court records, and interviewed 1032 of them. We designated bankruptcies as “medical” based on debtors' stated reasons for filing, income loss due to illness, and the magnitude of their medical debts. Results Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance. Using identical definitions in 2001 and 2007, the share of bankruptcies attributable to medical problems rose by 49.6%. In logistic regression analysis controlling for demographic factors, the odds that a bankruptcy had a medical cause was 2.38-fold higher in 2007 than in 2001. Conclusions Illness and medical bills contribute to a large and increasing share of US bankruptcies.
A European directive requires Member States to give firms access to preventive restructuring procedures. This paper assesses the benefits of having a procedure that is distinct from that for ...insolvent firms. It is based on the French experience, where a preventive procedure has coexisted alongside the more common restructuring procedure since 2006. The spatial and temporal heterogeneity of the commercial courts’ decisions allows the identification of the causal impact of the conversion from the preventive procedure to the common one on the firm’s survival chances. Using an (almost) exhaustive sample of preventive bankruptcy filings over 2010–2016, we show that conversion reduces the probability of firm survival by 50 percentage points, which corresponds to indirect bankruptcy costs of around 20% of the firm’s assets. Our interpretation is that the low restructuring rate under the common bankruptcy procedure may alarm some of the firm’s stakeholders, especially its customers. This in turn aggravates the firm’s difficulties and reduces its chances of restructuring under the common procedure. We provide some empirical evidence to support this interpretation. A distinct preventive procedure helps prevent this spiral.
This paper examines the impact of stock liquidity on firm bankruptcy risk. Using the Securities and Exchange Commission decimalization regulation as a shock to stock liquidity, we establish that ...enhanced liquidity decreases default risk. Stocks with the highest default risk experience the largest improvements. We find two mechanisms through which stock liquidity reduces firm default risk: improving stock price informational efficiency and facilitating corporate governance by blockholders. Of the two mechanisms, the informational efficiency channel has higher explanatory power than the corporate governance channel.
Purpose
The purpose of this paper is to evaluate farm financial stress within the USA over the past 20 years and the agricultural and economic factors which have impacted farm businesses. The effect ...of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) on farm financial stress is further evaluated. In particular, Chapter 12 bankruptcies – which can only be filed by farmers – were only a temporary measure until BAPCPA made Chapter 12 a permanent fixture in bankruptcy law.
Design/methodology/approach
Chapter 12 bankruptcy filings from 1997 until 2016 are used as a proxy for farm financial stress. Panel fixed effects models are used to determine relevant factors affecting financial stress for farmers from agricultural and macroeconomic perspectives. Further, models incorporating pre- and post-BAPCPA regimes are utilized.
Findings
The results show that macroeconomic factors (interest and unemployment rates) are strong predictors of farm bankruptcies for farms while agricultural land values are the only consistent strong predictor among the agricultural factors. When evaluating the post-BAPCPA regime, only agricultural land values continue to be a significant predictor of farm bankruptcies. The findings also indicate a dynamic relationship with agricultural land values, where current year values are negatively related but previous year land values are positively related to bankruptcies.
Originality/value
The authors provide an analysis of the post-BAPCPA regime on farm bankruptcies that has not been evaluated within the literature yet. Further, the findings illuminate discussion on a potentially dynamic relationship with financial stress and agricultural land values.
Using a large sample of Swedish private firms, we investigate the link between the prior corporate bankruptcy experiences (BEs) of directors and CEOs and the financial risk of their current firms. We ...find that firms with directors and CEOs previously involved in bankruptcies exhibit more aggressive corporate financial policies, have a higher corporate bankruptcy risk and are subject to a higher cost of debt. Our findings align with an innate characteristics explanation: corporate BEs and current corporate risk‐taking reflect personal risk preferences. Furthermore, while we find evidence of income losses for CEOs and directors involved in bankruptcies, such losses are transient, potentially explaining the risk‐taking behavior after experiencing bankruptcy. Overall, our results suggest that the presence of individuals with prior BE can be considered a signal of higher financial risk for their firms. This insight is relevant to regulators, lenders and corporate decision‐makers.
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