Do Federal Bankruptcy Exemptions Fundamentally Alter Chapter 7 Bankruptcy Outcomes?

Abstract

The relationship between federal bankruptcy exemptions and Chapter 7 bankruptcy outcomes are examined using spreadsheet modelling techniques. These techniques benchmark the nature (and distribution) of debts discharged in Chapter 7 assets case filings. Data from Chapter 7 asset cases in the western United States in 2010 indicate an optimal Chapter 7 asset case distribution: 9.0 percent of assets back to the debtor, 28.1 percent to unsecured creditors, 21.0 percent to secured creditors, 28.9 percent to court administrators (including trustees), 4.4 percent to creditors arising from prior bankruptcy filings, and 8.6 percent to all other creditors. The nature (and distribution) of liquidated assets allocated to creditors across debtor choice and non-debtor choice states is empirically assessed and no evidence is found to suggest debtor choice leads to a better outcome for debtors.