| Abstract: | A model of risk reduction is used to analyze personal bankruptcy rates. The model shows how state and federal laws can affect the quantity of resources that lenders devote to reducing the risk of making bad loans. Unanticipated events cause changes in bankruptcy rates because they alter the costs and benefits of bankruptcy to both creditors and debtors. Results of other studies are shown to be consistent with this model. Data for 1980 are then used to test the model. Asset exemption laws have a significant impact on bankruptcy rates that is consistent with the model. Unanticipated economic events are also found to have significant effects on bankruptcy rates. |
