This paper studies the role of job displacement in the household bankruptcy decision. Using an event-study methodology, I find that households in the NLSY are over three times more likely to file for bankruptcy in the year immediately following a job loss. Heightened bankruptcy risk then declines in magnitude but persists for two to three years. These findings are conditional on the financial benefit to filing and consistent with a dynamic forward-looking model where persistent negative income

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... hocks increase a household's likelihood of filing for bankruptcy both immediately and in the future. Aggregate patterns in job loss and bankruptcy are also consistent with the micro model. Using county-level data and a shift-share instrument for demand-driven job changes, I similarly find that 1,000 job losses are associated with a tripling of the county bankruptcy rate. In addition, the loss of a manufacturing job, a proxy for a more persistent separation, is 40 percent more likely to lead to bankruptcy than the loss of a non-manufacturing job. The results suggest that unemployment spells can have significant long-term consequences on households' credit market outcomes.