New evidence of spillovers in personal bankruptcy using point-coded data

Bankruptcy spillovers are said to occur when a household’s decision to file for bankruptcy is influenced by the filings of neighbours. This paper argues that spillovers are best captured by measuring the extent to which spatial and temporal lags of filings affect current filings in small geographical regions. It uses the geocoded exact addresses of all debtors who filed in the state of Maryland between 1949 and 1973. An additional bankruptcy last year increases bankruptcies this year by as much as 7%. The effect is largest for small distances and short lags. Moreover, close neighbours are more likely to share an attorney. These results suggest that interpersonal exchange of information is the dominant mechanism of transmission.