A debtor-friendly personal bankruptcy regime reallocates credit by reducing its availability, particularly for low-asset individuals. We show that increasing the amount of asset protection in bankruptcy leads to higher income inequality. The rise in inequality is amplified in industries with...

We study the effect of debtor protection on business dynamism. We find that greater debtor protection, in the form of more lenient personal bankruptcy laws, increases firm entry only in sectors requiring low startup capital. We also find that debtor protection increases firm exit and job...