Disasters, Disaster Aid, and Bankruptcy Filings in the United States

Abstract

The authors measure the extent to which disasters triggered by natural hazards are important adverse events that trigger bankruptcy. To accomplish this, the authors construct a new panel of damage from climatic events and disaster aid declarations covering 1981–2004, which the authors link to data on bankruptcy filings. Damage of $50 per capita or more increases the bankruptcy rate by 1.2 per 10,000 residents (about 3.6%) relative to trend. Federal disaster aid does not mitigate the impact. Damage farther in the past is associated with bankruptcy rates that are below trend. The pattern and sizes of the impact suggest that a major storm event pushes many households that are already in or near default into bankruptcy.