Moorman, D. & Garasky, S. (2008) Consumer debt repayment behavior as a precursor to bankruptcy. Journal of Family and Economic Issues, 29(2), 219-233.

Brief Description: This study explores the extent to which households seek bankruptcy protection without first attempting to restructure their debt or experiencing financial distress. As was expected, results indicate that a significant relationship exists between having prior financial problems and filing for bankruptcy. Households that obtained consolidation loans were equally likely to file for bankruptcy as those who did not.

Implications: In 2005, the Bankruptcy Code was revised and became known as the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Proponents for the revision argued that filing for bankruptcy had become too easy and that consumers were abusing the right to do so. The findings from this study provide evidence that significant numbers of consumers are not abusing the system, but instead are seriously struggling with overwhelming financial burdens. Results of this study suggest that interventions mandated by BAPCPA, such as financial counseling, arrive too late to prevent most consumers from filing for bankruptcy.