THE IMPACT OF STATE EXEMPTIONS ON PERSONAL BANKRUPTCY FILINGS By

Although the Federal Government is granted authority over bankruptcy law through the U.S. Constitution (Article 1, section 8), the Federal Government has historically left bankruptcy law for state governments to enact. In 1978, the U.S Congress tried to create a national bankruptcy law, but a last minute compromise allowed states to override federal law in key areas such as Chapter 7 exemption types and amounts. Since the 1978 law was enacted, all states have overridden the law to some extent. Although the original 1978 law has undergone several revisions, the basic structure of the law with state control over certain provisions remains the same. Because the Chapter 7 exemptions affect the cost of bankruptcy for the debtor, this paper develops a state level probability model to determine whether the different state exemption amounts affect the probability of filing for bankruptcy. The paper shows that states with more lenient exemption laws will incur a higher bankruptcy rate after controlling for socioeconomic and economic conditions that may create higher bankruptcy frequencies. iii Acknowledgments I would like to thank the thesis committee of Dr. Tom Lutton, Dr. Roger Waud, and Dr Nancy Wentzler for all of their patience, time, and advice. I am also grateful to Anniene Porter who so beautifully guided and encouraged me through the thesis process. Finally, many thanks go to my new wife, Jill Marsteller, for her comments and support. iv GRAPHS Graph 1: Two Period Consumption Model............................................12 TABLES Table 1: Exemption Variables............................................................25 Table 2: Summary of Independent Variables.........................................26 Table 3: Model Results For Two State-Level Bankruptcy Frequ..