The effect of personal bankruptcy exemptions on divorce

Abstract

This paper estimates the effects of Chapter 7 bankruptcy exemptions on the divorce decision. Using an individual level panel data set, three empirical models are estimated. The results suggest that a rise in the total exemption has a small positive effect on the probability of divorce. The most significant contribution of this paper comes from a difference-in-difference-in-difference estimator that separates the total exemption into the personal property and the homestead exemption. The model estimates the differential effects of the homestead exemption on homeowners and non-homeowners. Results do not suggest that homeowners and non-homeowners react differently to an increase in the homestead exemption. This paper extends on previous research by providing additional theoretical and empirical implications, and through its use of an individual panel data set.