Bankruptcy Spillovers: Distance, Public Disclosure and Opaque Information

We examine whether individuals are influenced to file for bankruptcy by the past bankruptcies of their close neighbors. We find that a one standard deviation increase in neighborhood bankruptcies increases the probability of defaulting via bankruptcy rather than via credit card charge-off by 6%. Our individual level data on defaulters is from detailed credit card accounts, which is matched to neighborhood level data on the geographic location of every bankruptcy filer. Our data allows us to employ two separate identification strategies based on neighborhood geography and bankruptcy/default law. Our results are consistent with the bankruptcy policy arguments of pro-creditor lobbyists.