Rehabilitation or Liquidation: Consumers' Choices in Bankruptcy

• Published in: The Journal of consumer affairs 1990-06, Vol.24 (1), p.69-88
• Main Authors: SULLIVAN, A. CHARLENE, WORDEN, DEBRA DRECNIK
• Format: Article
• Language: English
• Subjects: Bankruptcy; Bankruptcy Code; Bankruptcy petitions; Chapter 13 bankruptcy; Chapter 7 bankruptcy; Consumer bankruptcy; Consumer behavior; Consumer credit; Credit counseling; Debt; Debt repayment; Debtor and creditor; Debtors; Liquidation; Management; Petitioners
• ISSN: 0022-0078; 1745-6606
• DOI: 10.1111/j.1745-6606.1990.tb00259.x

The purpose of this analysis is to identify the legal, environmental, and economic characteristics of debtors that are predictive of their Bankruptcy Code choices. The probability that debtors file under the rehabilitation procedure provided by the Bankruptcy Code (Chapter 13) is influenced by the availability of credit counseling as an alternative to bankruptcy and by the adverse effects of a liquidation bankruptcy (Chapter 7) on future ability to qualify for consumer and mortgage credit. More generous state laws protecting debtors' assets from liquidation in Chapter 7 have a negative effect on the probability that a debtor will contract to repay some debts out of future income in Chapter 13. The results also suggest that the enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984, which restricted Chapter 13 plans providing zero repayment of unsecured debts, precipitated a decline in the probability that nonbusiness debtors would choose the rehabilitation alternative.