The Political Economy of Property Exemption Laws

44 Pages Posted: 27 Sep 2001

See all articles by Eric A. Posner

Eric A. Posner

University of Chicago - Law School

Richard M. Hynes

University of Virginia School of Law

Anup Malani

University of Chicago - Law School; National Bureau of Economic Research (NBER); University of Chicago Pritzker School of Medicine; Resources for the Future

Date Written: September 2001

Abstract

Exemption laws enable people who default on loans to protect certain assets from liquidation, both inside and outside bankruptcy. Every state has its own set of exemption laws, and they vary widely; the federal bankruptcy law also establishes a set of exemptions, which debtors in bankruptcy are permitted to use instead of their state's exemptions unless the state has formally "opted out" of the federal system. We test a wide range of public interest and public choice explanations for exemption laws, using a data set consisting of the exemption laws in all states over twenty-two years, and also exploiting the opt out choice of the different states. We find that states are more likely to opt out, and to increase their exemptions in the process, if they are conservative, start with low exemptions, and have a high bankruptcy filing rate. We find little evidence for popular theories of exemptions levels; the most important factor correlated with exemption level is the historical generosity of a state's exemption laws.

Keywords: Bankruptcy, exemption laws, credit, opt out laws

JEL Classification: K12, G18

Suggested Citation

Posner, Eric A. and Hynes, Richard M. and Malani, Anup, The Political Economy of Property Exemption Laws (September 2001). U Chicago Law & Economics, Olin Working Paper No. 136, Available at SSRN: https://ssrn.com/abstract=285172 or http://dx.doi.org/10.2139/ssrn.285172

Eric A. Posner (Contact Author)

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Richard M. Hynes

University of Virginia School of Law ( email )

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Anup Malani

University of Chicago - Law School ( email )

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773-702-0730 (Fax)

HOME PAGE: http://www.law.uchicago.edu/faculty/malani/

National Bureau of Economic Research (NBER)

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University of Chicago Pritzker School of Medicine

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Resources for the Future

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