CFCM 10/05: The Social Dimension to the Consumer Bankruptcy Decision

Abstract

Personally knowing someone who has been bankrupt substantially increases the likelihood of an individual reporting they would consider filing for bankruptcy. This paper provides new evidence on the role of social effects in the personal bankruptcy decision using individual-level survey data from a representative sample of households in the United Kingdom. Respondents who reported they personally knew someone who had previously been bankrupt are more likely to consider bankruptcy as a viable option for discharging their debts. By contrast, respondents from an ethnic minority group are much less likely to consider bankruptcy. Both effects are substantial in magnitude, larger than the impact of demographic characteristics and point to a strong social element to the consumer bankruptcy decision.

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Authors

John Gathergood

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