Lawyers Steer Clients Toward Lucrative Filings: Evidence from Consumer Bankruptcies
40 Pages Posted: 12 Nov 2010 Last revised: 31 Jul 2013
Date Written: July 10, 2013
Consumers often rely on lawyers to make complicated legal decisions, though in many cases, the lawyer’s financial interests are at odds with those of the client. We consider this general problem in the context of consumers filing for bankruptcy. Lawyers advise debtors on whether to file the cheaper Chapter 7 filing or the more expensive, and more likely to be dismissed, Chapter 13 filing. We show that bankruptcy courts that allow lawyers to charge more for Chapter 13 bankruptcy filings see a larger fraction of Chapter 13 filings. This is true controlling for a host of demographic controls at the zip code level, as well as with state fixed effects.
Keywords: Bankruptcy, Principal-Agent Problems
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