Making Sense of Nation-Level Bankruptcy Filing Rates

Abstract

Increased rates of consumer bankruptcy filings are a policy concern around the world. It is not easy, however, to explain the variations in per capita filing rates from country to country. Some of the variation is attributable to different levels of indebtedness. Some is attributable to different cultural attitudes about financial failure. And some is attributable to the accessibility of the legal system as a remedy for irremediable financial distress. This paper analyzes the differences in nation-level, per capita filing rates. I start with a model that uses economic variables to explain nation-level variations in filing rates. The economic and statistical significance of the coefficients on country dummy variables in that model suggests that noneconomic variables also play an important role in explaining differences in filing rates. Two findings are salient. First, the bulk of the uniquely high filing rate in the United States is attributable to economic conditions, not cultural attitudes or the legal system. Second, after controlling for economic conditions, Canada's filing rate is by far the highest of any of the countries for which adequate data is available. The paper then undertakes to explain those findings. It considers both why Canada's propensity to file is so much higher than that of the U.S., and why Australia's is so much lower. Generally, back-end issues related to the timing of a discharge and the payments required to obtain it are relatively unimportant. Back-end issues matter primarily to the relatively small sector of bankruptcy filers with significant income or assets. For the great mass of potential filers (who have little or no income or assets), the most important issues are front-end barriers to filing, whether they come from procedural obstacles or from cultural attitudes about financial distress (as reflected in civil disabilities imposed on bankrupts).