Bankruptcy is the legal process by which financially distressed firms and individuals resolve their debts. It is an important part of the legal environment for small business owners and their lenders because small businesses are very risky and often fail and because bankruptcy law affects how...

In this paper, we investigate how personal bankruptcy law affects small firms' access to credit. When a firm is unincorporated, its debts are personal liabilities of the firm's owner, so that lending to the firm is legally equivalent to lending to its owner. If the firm fails, the owner has an...