Essays on Personal Bankruptcy and Mortgage Foreclosure

• Author / Creator

  Mikhed, Vyacheslav

• This thesis consists of four chapters. Chapter 1 tests the hypothesis that income shocks cause bankruptcy. Using a difference-in-difference specification, we exploit an exogenous fiscal payment, paid to Albertans, and find that this payment causes a decrease in bankruptcies, as predicted by the income shock hypothesis. Using insolvent's balance sheet data, we find that the financial benefits of bankruptcy (liabilities discharged minus wealth forgone) are higher for those filers who received the payment. This is consistent with those potential filers, with smaller advantages from bankruptcy, being dissuaded from filing by the payment. Chapter 2 examines the effect of income inequality on debt and financial distress. Following the 2008 crisis, several authors have argued that growing inequality increases debts of the poor, who attempt to match the consumption of the rich; and that these debts lead to bankruptcy. We test this argument using a unique database of essentially every personal bankruptcy filing in Canada from 2005 to 2010. Our main finding is that increased income inequality is associated with higher levels of debt in bankruptcy; in particular, larger unsecured and credit card debt and increased risk of bankruptcy. Chapter 3 explores the impact of the distance between filers and bankruptcy professionals on bankruptcy filing costs. We test if longer distances between debtors and their closest bankruptcy professionals, implying higher transactions costs, lead to debtors demanding larger financial benefits from their bankruptcy to make the bankruptcy worthwhile. We show that distance related costs are particularly important in rural areas, where distances to the closest bankruptcy professionals are typically large. Chapter 4 examines the impact of government policies on US mortgage foreclosures. Before the 2008 financial crisis, the US government encouraged mortgage lending to low income borrowers designated as a special ‘under-served’ group by the Community Reinvestment Act. We explore whether this law influenced mortgage foreclosures in 2003-2010. We exploit the 80 percent threshold discontinuity embedded in the law to identify the causal effect of the law on foreclosures. We find that regions with relatively faster and less expensive non-judicial foreclosure process experienced an increase in foreclosures due to the Community Reinvestment Act.

• Subjects / Keywords

  • Foreclosure
  • Inequality
  • Bankruptcy
  • Income shocks

• Graduation date

  Fall 2013

• Type of Item

  Thesis

• Degree

  Doctor of Philosophy

• DOI

  https://doi.org/10.7939/R36H4D

• License

  This thesis is made available by the University of Alberta Libraries with permission of the copyright owner solely for non-commercial purposes. This thesis, or any portion thereof, may not otherwise be copied or reproduced without the written consent of the copyright owner, except to the extent permitted by Canadian copyright law.