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New Insights in the Determinants of Regional Variation in Bankruptcy Filing Rates

New Insights in the Determinants of Regional Variation in Bankruptcy Filing Rates. Kelly D. Edmiston Senior Economist, FRB Kansas City North American Meetings, RSAI November 10, 2005 Las Vegas, NV. Personal Bankruptcies in the U.S. Bankruptcy Filing Rates by County, U.S., 2000. Focus.

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New Insights in the Determinants of Regional Variation in Bankruptcy Filing Rates

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  1. New Insights in the Determinants of Regional Variation in Bankruptcy Filing Rates Kelly D. Edmiston Senior Economist, FRB Kansas City North American Meetings, RSAI November 10, 2005 Las Vegas, NV

  2. Personal Bankruptcies in the U.S.

  3. Bankruptcy Filing Rates by County, U.S., 2000

  4. Focus • homestead exemptions • social stigma • legal gambling • wage garnishment K. Edmiston, Federal Reserve Bank of Kansas City

  5. Homestead Exemptions • V – EH allocated to unsecured debts • foreclosure • Protection is afforded to all types of assets • Offers consumption insurance / lowers bankruptcy filing costs K. Edmiston, Federal Reserve Bank of Kansas City

  6. Homestead Exemptions: Empirical Evidence • Some high asset individuals move to high exemption states to convert assets • Exemptions that are both higher and lower than federal lead to more bankruptcies • Effect on bankruptcies is negative • Effect on bankruptcies is positive • Positive for 7 filings and negative for 13 filings K. Edmiston, Federal Reserve Bank of Kansas City

  7. Two approaches to measuring the effect of homestead exemptions (1) Least Squares with White’s (1980) Correction: (2) Two-Stage Model to Account of Endogeneity K. Edmiston, Federal Reserve Bank of Kansas City

  8. Stage 1

  9. Stage 2 Estimate by least squares: Bootstrapping Sample: n observations from X, with replacement Estimate: Generate: Evaluate:

  10. Social Stigma • Previous approaches • age (and age squared) • geography (own state for individual) • Innovations on previous approaches • entire age distribution • LS with regional dummies and SAR • New approach • religious adherence K. Edmiston, Federal Reserve Bank of Kansas City

  11. Age Distribution 1

  12. Age Distribution 2

  13. Estimation of Geographic Factors and Results Least Squares with Regional Dummy Variables SAR

  14. Religious Adherence

  15. Wage Garnishment

  16. Gambling in the United States, 2000

  17. Gambling Results

  18. Kelly D. Edmiston Senior Economist Community Affairs Department Federal Reserve Bank of Kansas City 925 Grand Boulevard Kansas City, MO 64198-0001 Tel: (816) 881-2004 Fax: (816) 881-2704 E-Mail: Kelly.Edmiston@kc.frb.org

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