Moral Hazard versus Liquidity in Household Bankruptcy

This paper studies the role of moral hazard and liquidity in driving household bankruptcy. First, I estimate that increases potential debt forgiveness have a positive, but small, effect on filing using regression kink design. Second, exploiting quasi-experimental variation mortgage payment reductions, is five times more responsive to cash-on-hand than relief generosity. Using sufficient statistic, show estimates imply large consumption-smoothing benefits bankruptcy for marginal filer. Finally, conclude 83% response dischargeable comes from effects rather financial incentives. article protected by copyright. All rights reserved