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Does bankruptcy law explaining why doctors buy nicer homes than other professionals?

Most people tend to assume that successful doctors, lawyers, and business executives tend to lead similar lifestyles in terms of the clothes they wear, the cars they drive, the schools they send their kids to, and the houses they buy. This isn’t necessarily untrue, but recent research actually shows that doctors tend to buy slightly more expensive homes than other professionals earning the same income, at least in some states.

According to a paper recently published by the National Bureau of Economic Research, bankruptcy law is one of the factors that could explain the discrepancy. What researchers suggest is that the fear of medical malpractice-induced financial collapse, combined with generous homestead exemptions, motivate physicians in some states to put more money into their homes than other professionals. 

Medical malpractice can, of course, be a major financial disruption and, in some cases, can propel a physician into bankruptcy. It is well known that physicians work under the continual threat of malpractice liability, and that this influences the way they do their work. It may also influence where they put their money, depending on the bankruptcy exemption rules utilized in their state.

Bankruptcy exemptions come into play in both Chapter 7 and Chapter 13 bankruptcy. In Chapter 7 bankruptcy, exemptions are particularly important since they determine which, and how much, assets a debtor is able to keep in the liquidation process. One important exemption is the homestead exemption, or the debtor’s primary residence. The value of the exemption varies from state to state, and those who live in states with generous homestead exemptions could benefit from putting more of their money into their home.

In our next post, we’ll continue looking at this topic and bankruptcy exemptions in general. 

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