Does Social Capital Impact Household Default and Bankruptcy Behavior?

In this paper, we empirically assess the role of individual social capital on personal bankruptcy and default outcomes in the consumer credit market. After controlling for a borrower’s risk score, debt, income, wealth, and legal and economic environments, we findthat default/bankruptcy risk rises and then falls over the lifecycle, while a borrower whoowns a home or is married has a lower risk of default/bankruptcy. Moreover, a borrowerwho migrates 190 miles from his ‘‘state of birth’’ is 17% more likely to default and 15%more likely to file for bankruptcy, while a borrower who continues to live in his state ofbirth is 14% and 10% less likely to default and file for bankruptcy, respectively. A borrowerwho moves to a rural area is 9% and 7% less likely to default and declare bankruptcy,respectively. We also find that measures of social networks, norms, and cooperation andtrust (i.e., aggregate social capital) are inversely related to consumer bankruptcy.