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Chapter 7 or 13: Are Client or Lawyer Interests Paramount?Lars John LefgrenBrigham Young University - Department of Economics Frank McIntyreRutgers Business School Newark and New Brunswick Michelle M. MillerRutgers, The State University of New Jersey - Business School 2010 Berkeley Electronic Journal of Economic Analysis and Policy Advances, Vol. 10, No. 1, 2010 Abstract: Households often rely on professionals with specialized knowledge to make important financial decisions. In many cases, the professional’s financial interests are at odds with those of the client. We explore this problem in the context of personal bankruptcy. OLS, fixed effects, and IV estimates all show that attorneys play a central role in determining whether households file under Chapter 7 or Chapter 13 of the bankruptcy code. We present evidence suggesting that some attorneys maximize profits by steering households into Chapter 13 bankruptcy even when the households’ objective financial benefits are low and the probability of case dismissal is high. An attorney-induced Chapter 13 filing increases household legal fees and reduces the probability of long-term debt relief.
Number of Pages in PDF File: 46 Accepted Paper SeriesDate posted: January 11, 2012Suggested CitationContact Information
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