#97-08
"Property Exemptions and Loan Repayments"
Abstract: Most previous studies of state property exemptions, often referred to as bankruptcy exemptions, have focused exclusively on their relationship to the bankruptcy filing rate. With one exception these studies have failed to find a positive relationship between the filing rate and the generosity of the property exemptions Because a debtor need not file for bankruptcy in order to avoid repaying his debt, it is argued that the bankruptcy rate is only interesting to the extent that it serves as a proxy for the debtor's willingness to repay more generally. The percentage of loans charged-off by banks within a state is also used us a proxy for this variable of interest. By using the 1984 and 1994 changes in the, federal bankruptcy exemptions, which are available in some but not all of the states, this paper examines the extent to which the failure of the "simple" hypothesis to withstand testing is due to the effect of the repayment rate on the property exemptions chosen by the State. Preliminary results imply that if one controls for this problem then the generosity of the property exemptions is indeed positively related to the bankruptcy filing rate.
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