The Economic Consequences of Bankruptcy Reform

A more generous consumer bankruptcy system provides greater insurance against financial risks but may also raise the cost of credit. We study this trade-off using 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which increased costs filing for bankruptcy. identify effects BAPCPA on borrowing variation in reform across credit scores. find that a one-percentage-point reduction risk decreased card interest rates by 70–90 basis points. Conversely, reduced value bankruptcy, with uninsured hospitalizations 70 percent less likely to obtain relief after reform. (JEL D18, G15, I13, K35)