todd j. zywicki professor of law george mason university law school

31
The Causes and Consequences of BAPCPA Adapted from Todd J. Zywicki, Bankruptcy and Personal Responsibility: Consumer Bankruptcy Law and Policy in the Twenty-First Century (Forthcoming 2007, Yale University Press) Todd J. Zywicki Professor of Law George Mason University Law School Research Fellow, James Buchanan Center

Upload: pegeen

Post on 20-Feb-2016

31 views

Category:

Documents


0 download

DESCRIPTION

The Causes and Consequences of BAPCPA Adapted from Todd J. Zywicki, Bankruptcy and Personal Responsibility: Consumer Bankruptcy Law and Policy in the Twenty-First Century (Forthcoming 2007, Yale University Press). Todd J. Zywicki Professor of Law George Mason University Law School - PowerPoint PPT Presentation

TRANSCRIPT

Page 1: Todd J. Zywicki Professor of Law George Mason University Law School

The Causes and Consequences of BAPCPAAdapted from Todd J. Zywicki, Bankruptcy and Personal Responsibility: Consumer Bankruptcy Law and Policy in the Twenty-First Century (Forthcoming 2007, Yale University Press)

Todd J. ZywickiProfessor of LawGeorge Mason University Law SchoolResearch Fellow, James Buchanan Center

Page 2: Todd J. Zywicki Professor of Law George Mason University Law School

Overview Traditional Model: Consensus Since 1950s Traditional Model Accounts for “Background”

Level of Bankruptcies: National and Regional Does Traditional Model Explain Upward

Trend of Past 25 Years? A New Model? BAPCPA

Page 3: Todd J. Zywicki Professor of Law George Mason University Law School

The ChallengeBankruptcy Filings per 100,000 Population

0

100

200

300

400

500

600

Year

Ban

krup

tcy

Filin

gs p

er 1

00,0

00 P

op

Page 4: Todd J. Zywicki Professor of Law George Mason University Law School

The Traditional ModelHypothesis: Bankruptcy Results from

Household Financial Distress Heavy Indebtedness and/or An Unexpected Expense or Income Shock

to Household Budget Unemployment or Downsizing Divorce Health

Page 5: Todd J. Zywicki Professor of Law George Mason University Law School

Rise of Traditional ModelFigure 1: Bankruptcy Filings, 1900-1950

0

10

20

30

40

50

60

Year

Ban

krut

pcy

Fil

ings

per

10,

000

Pop

Page 6: Todd J. Zywicki Professor of Law George Mason University Law School

The Bankruptcy CrisisNonbusiness Filings per 1000 Households

0

2

4

6

8

10

12

14

16

18

20

Year

Filin

gs p

er 1

000

Hou

seho

lds

Page 7: Todd J. Zywicki Professor of Law George Mason University Law School

“Debt Causes Bankruptcy” Thesis Douglas Baird: “Bankruptcy filings . . . are affected most by the

amount of debt individuals carry relative to their annual income. . . . The higher this ratio the more likely individuals will be unable to pay their debts if they encounter economic misfortune.”

Elizabeth Warren: “The macrodata are unambiguous about the best predictor for consumer bankruptcy. Consumer bankruptcy filings rise and fall with the levels of consumer debt. . . . The simple explanation of the rise in filings—bankruptcies rise as household debt rises—is undeniable.”

Theoretical Questions: Endogeneity Empirical Questions

Page 8: Todd J. Zywicki Professor of Law George Mason University Law School

Debt and Bankruptcy

Equity/“Cash Flow” Insolvency: Ability to Pay Debts as they Come Due (Flow Measure)

Liquidation/Bankruptcy Insolvency: Ratio of Total Assets to Total Debt at Liquidation (Stock Measure)

Credit Cards

Page 9: Todd J. Zywicki Professor of Law George Mason University Law School

Cash Flow Insolvency

Source: Administrative Office of U.S. Courts, Federal Reserve

Debt Service Ratio by Type of Debt: 1980-2006

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

Year

Pro

port

ion

of In

com

e

Nonrevolving DSR

Revolving DSR

Mortgage DSR

Total DSR

Page 10: Todd J. Zywicki Professor of Law George Mason University Law School

Bankruptcy Insolvency

Source: Federal Reserve

Household Net Worth

0

10000

20000

30000

40000

50000

60000

Year

Net

Wor

th (B

illio

ns)

Page 11: Todd J. Zywicki Professor of Law George Mason University Law School

Bankruptcy Insolvency

Household Net Worth

0

10

20

30

40

50

60

70

80

90

100

1989 1992 1995 1998 2001 2004

Year

Med

ian

Net

Wor

th

0

50

100

150

200

250

300

350

400

450

500

Mea

n N

et W

orth Median

Household NetWorth

Mean HouseholdNet Worth

Page 12: Todd J. Zywicki Professor of Law George Mason University Law School

Changes in Net WorthMedian Net Worth by Income Ranges

0

100

200

300

400

500

600

700

800

900

1000

1989 1992 1995 1998 2001 2004

Net

Wor

th (i

n Th

ousa

nds)

Median Net Worth AllHouseholds

Lowest Quintile

Second Quintile

Third Quintile

Fourth Quintile

80-89.9%

90-100%

Page 13: Todd J. Zywicki Professor of Law George Mason University Law School

Credit Cards

Source: Federal Reserve and Bureau of Economic Analysis

Nonmortgage DSR

0.045

0.05

0.055

0.06

0.065

0.07

0.075

Year

Pro

port

ion

of In

com

e

Page 14: Todd J. Zywicki Professor of Law George Mason University Law School

Credit CardsNon-Mortgage DSR

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

Year

Pro

port

ion

of In

com

e

Non-RevolvingPlus Revolving

Nonrevolving DSR

Revolving DSR

Page 15: Todd J. Zywicki Professor of Law George Mason University Law School

Substitution EffectConsumer Interest Rates, Washington DC, August 25, 2006

5

6

7

8

9

10

11

Personal Loan Credit Cards Home Equity Loan New Car Loan

Inte

rest

Rat

e

Page 16: Todd J. Zywicki Professor of Law George Mason University Law School

Substitution Effect

Page 17: Todd J. Zywicki Professor of Law George Mason University Law School

Substitution Effect

Page 18: Todd J. Zywicki Professor of Law George Mason University Law School

MortgagesMortgage Debt Service Ratio

0.04

0.045

0.05

0.055

0.06

0.065

0.07

0.075

0.08

Year

Page 19: Todd J. Zywicki Professor of Law George Mason University Law School

The Housing “Bidding War”(From Warren & Tiyagi, The Two-Income Trap, pp. 50-51)

Figure 8: Single-Income Family, Early 1970s(Total Income=$38,700)

Health Ins., 1030, 3%

Mortgage, 5310, 14%

Automobile, 5140, 13%

Taxes, 9288, 24%

Discretionary, 17834, 46%

Page 20: Todd J. Zywicki Professor of Law George Mason University Law School

“Bidding War”?(From Warren & Tiyagi, The Two-Income Trap, pp. 50-51)

Figure 9: Dual-Income Family, Early 2000s(Total Income=$67,800)

Health Ins., 1650, 2%

Mortgage, 9000, 13%

Automobile, 8000, 12%

Taxes, 22374, 34%

Discretionary, 17045, 25%

Child Care, 9670, 14%

Page 21: Todd J. Zywicki Professor of Law George Mason University Law School

Mortgages and Home OwnershipHome Ownership Percentage

62

63

64

65

66

67

68

69

70

Page 22: Todd J. Zywicki Professor of Law George Mason University Law School

Financial Shocks

Unemployment Downsizing Divorce

Page 23: Todd J. Zywicki Professor of Law George Mason University Law School

Unemployment?

Source: Bureau of Labor Statistics and Administrative Office of U.S. Courts

Figure 10: Unemployment and Bankruptcy

0

2

4

6

8

10

12

14

16

Year

Ban

krup

tcie

s per

1,0

00 F

amili

es

0

2

4

6

8

10

12

Une

mpl

oym

ent R

ate

Bankruptcies per1,000 Families

UnemploymentRate

Page 24: Todd J. Zywicki Professor of Law George Mason University Law School

Downsizing?Figure 11: Managers as Percent of Employment, 1948-94

11

12

13

14

15

16

17

18

19

20

Year

Man

ager

s as P

erce

nt N

onfa

rm E

mpl

oym

ent

Source: David Gordon, Fat and Mean (1994).

Page 25: Todd J. Zywicki Professor of Law George Mason University Law School

Divorce?

Source: Bureau of Census and Administrative Office of U.S. Courts

Figure 12: Divorce and Bankruptcy

0

2

4

6

8

10

12

14

16

Year

Ban

krup

tcie

s per

1,0

00 F

amili

es

0

1

2

3

4

5

6

Div

orce

Rat

e/1,

000

Hou

seho

lds

Bankruptcies per1,000 Households

Divorce Rate per1,000 Households

Page 26: Todd J. Zywicki Professor of Law George Mason University Law School

The Traditional Model: Appraisal Traditional Hypothesis: Increase in

Bankruptcy Filings Caused by Increase in Financial Distress

Financial Condition? Financial Shocks? Traditional Model: Background Rate and

Variation Around Trend Trend of Past 25 Years?

Page 27: Todd J. Zywicki Professor of Law George Mason University Law School

Institutions, Incentives, and The Consumer Bankruptcy Crisis Hypothesis: Financial Distress has Not

Increased, but Propensity to File Bankruptcy In Response to Financial Distress Has

Institutions and Incentives of Consumer Bankruptcy System

Page 28: Todd J. Zywicki Professor of Law George Mason University Law School

A New Institutional Economics Model of Consumer BankruptcyThree Hypotheses About the Causes of the

Consumer Bankruptcy Crisis:1. Change in the Relative Economic Costs and

Benefits of Filing Bankruptcy2. Changes in Social Norms (“Stigma”) and

Personal Attitudes Regarding Bankruptcy3. Changes in the Nature of Consumer Credit:

Impersonalization and Nationalization of Consumer Credit

Page 29: Todd J. Zywicki Professor of Law George Mason University Law School

Goals of BAPCPA: Preserve Fresh Start Preserve Relief for Those Who Need It Flexibility: Hurricane Katrina Effects on Domestic Support Obligations

Page 30: Todd J. Zywicki Professor of Law George Mason University Law School

Delinquencies on Consumer Loans Consumer Loan Delinquencies

0

1

2

3

4

5

6

Year

Per

cent

Del

inqu

ent

Credit CardDelinquencies

Other ConsumerLoanDelinquencies

Page 31: Todd J. Zywicki Professor of Law George Mason University Law School

Reduce Fraud and Abuse

Anti-Fraud Protections Anti-Abuse Provisions Involuntary Creditors: Domestic Support Repeat Filings Credit Counseling Changing Social Norms?