Lending Practices of Creditors to Debtors who have Completed a Bankruptcy Case and Received a Discharge
Consumer credit and consumer bankruptcy filings have grown rapidly over the last two decades, and several researchers have attempted to understand the relationship between these two intertwined features of the modern American economy. Teasing out causation is almost impossible, as consumer advocates lay blame on the industry and the industry responds by citing the same data to show consumer misbehavior. Using a novel vantage point, this analysis examines what the credit industry’s behavior toward recently bankrupt families reveals about its internal profit models and the likely causes of consumer bankruptcy. The empirical evidence on post bankruptcy credit solicitation belies the industry’s characterizations of bankrupt families as opportunistic or strategic actors. Original data from longitudinal interviews with consumer debtors show that many lenders target recent bankrupts, sending these families repeated offers for unsecured and secured loans. The modern credit industry sees bankrupt families as lucrative targets for high-yield lending, a reality that has important implications for developing optimal consumer credit policy and bankruptcy law.
Professor Katherine Porter of the Iowa School of Law recently published a study on the conduct of creditors in offering and extending credit to post-discharged debtors. A link to her study is noted below:
The University of Iowa College of Law
University of Iowa Legal Studies Research Paper
Number 07-26
September, 2007
Bankrupt Profits:
The Credit Industry’s Business Model For
Postbankruptcy Lending
Katherine Porter
College of Law, University of Iowa
This paper can be downloaded without charge from the Social Science Research Network electronic library
at: http://ssrn.com/abstract=1004276
