In the economic literature on bankruptcy, the standard methodology is to model the individual's bankruptcy decision as a binary choice between "bankruptcy" and "no bankruptcy." We define an additional choice-non-repayment without seeking the formal protection of the bankruptcy system-as informal bankruptcy. Using data from a large credit card issuer, we find evidence that while both lenient exemption laws and garnishment laws increase bankruptcies in the standard model, loose garnishment discourages default in our expanded model, while at the same time more pronouncedly shifting individuals from informal to formal bankruptcy. This result suggests that previous research may substantially understate the degree to which garnishment laws drive defaulting individuals to choose bankruptcy. Moreover, lenient exemption laws increase both formal and informal bankruptcy. We also find that borrowers living in majority black neighborhoods are more likely to choose informal bankruptcy, and less likely to choose bankruptcy, than other borrowers. We also test whether creditors' strategic interactions increase bankruptcies. We develop a two-period model of the "creditor's dilemma," a popular hypothesis in the legal literature. We examine a testable implication of this model, namely, that increasing the number of creditors (while holding the amount and availability of credit constant) should increase the probability that a defaulting borrower enters bankruptcy rather than a workout, and either decrease or not affect the probability of informal bankruptcy. We find that the number of creditors indeed has a positive and statistically significant effect on the probability of bankruptcy, and, depending on the specification, a significant negative or insignificant effect on informal bankruptcy.

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Purpose – The purpose of this paper is to explore the impact of creditors' undervaluing the total expected cost of a borrower's bankruptcy filing because a portion of the cost will be borne by other lenders. Creditors who bear a smaller portion of the total cost of a personal bankruptcy would be expected to take less care to avoid triggering one. Design/methodology/approach – This paper presents a theoretical model of a creditor's decision of how aggressively to pursue collection. The model shows that because each lender's collection actions increase the probability of bankruptcy, each lender will collect more aggressively when a borrower has many loans. The paper tests the predictions of the model using a large dataset of credit card accounts. Findings – The model highlights an important testable result: holding the level of debt constant, a borrower with many loans is more likely to choose formal bankruptcy and less likely to choose informal bankruptcy, i.e. chronic non-repayment absent a bankruptcy filing. This paper finds evidence that strongly supports the predictions of the model. Laws that limit creditor collection actions do not appear to mitigate the effects of increasing number of loans. Originality/value – While a few papers have tested whether strategic interactions may impact business bankruptcy, no paper of which the author is aware has provided clear empirical evidence of the existence of common pool effects in the personal credit market. These effects point to an important and potentially underappreciated source of risk for borrowers and creditors in this market.

Household bargaining models indicate that girls' access to resources does not depend solely on household income, but also on a number of factors that affect women's bargaining power. Data describing the allocation of resources within households is rare, prompting the development of inferential methods. Using a methodology that only requires household‐level expenditure data, we analyze intra‐household resource allocation in Timor‐Leste. While the results do not support the hypothesis that allocation is biassed towards boys in the full population we find, in subpopulations where women are likely to have less bargaining power, substantial anti‐girl bias. Copyright © 2016 John Wiley & Sons, Ltd.