New insights in the determinants of regional variation in personal bankruptcy filing rates, Community Affairs Research Working Paper 200505, Federal Reserve Bank of Kansas City

Nonbusiness bankruptcy filing rates have increased very rapidly over the last couple of decades. In 1980, roughly 15 of every 10,000 Americans filed for bankruptcy protection. By 2004, that number had reached 54 of every 10,000 Americans. These alarming increases in bankruptcy filing rates over the last decade were largely the impetus for the Bankruptcy Abuse Prevention and Consumer Protection Act, which went into effect in October, 2005. A substantial literature already exists that seeks to determine the causes of personal bankruptcy, but critical holes in the literature remain. In particular, existing studies offer only weak inferences about the role of stigma in explaining the decision to file for bankruptcy or in explaining regional variation in bankruptcy filing rates. I enhance the existing literature by using innovative approaches to measuring the effects of age and geography, traditional proxies for stigma, and by utilizing a novel proxy for stigma, namely, religious adherence. There is also a lack of consensus on the effects of gambling on bankruptcy, with most research finding no statistically significant relationships. I utilize a unique measure of proximity to gambling establishments and subsequently find more definitive results. The existing literature lacks consensus on the effects of homestead exemptions as well, with some finding positive effects, some finding negative effects, and still others finding no effects. I assert that the explanation of these inconsistent results may lie in endogeneity, and therefore I estimate two-stage models that effectively instrument fo