Please join us for Professor Omer Kimhi’s talk, Caught in a Circle of Debt – Consumer Bankruptcy Discharge and Its Aftereffects (abstract below).
Abstract: Despite the increasing popularity of personal bankruptcy and the discharge policy around the globe, we do not fully understand the discharge after-effects. Using data gathered by the Israeli Law Enforcement and Collection System Authority, this article explores this issue. We offer a novel methodology to determine how many debtors return to insolvency after discharge, and to assess, to the best of our knowledge for the first time,the likelihood a debtor with certain socio-economic characteristics will return to a state of insolvency.
Our results are disconcerting. We show that on average approximately a third of Israeli debtors granted discharge between the years 2009-2018 returned to insolvency. Most of the returning debtors returned to insolvency after a relatively short period, with more than 60% returning within two years. The returning debtors usually suffer from long-lasting difficulties. They disproportionally suffer from unemployment; they disproportionally receive disability and income security transfers and so on. Our results indicate that the benefits of the bankruptcy discharge policy are not evenly distributed among debtors, and that the discharge benefits mainly debtors with relatively sound economic backgrounds (low to middle class debtors) and not the chronically poor. The article presents the empirical data and examines policy implications.