Chapter 7 or 13: Are Client or Lawyer Interests Paramount?
Lars John Lefgren
Brigham Young University - Department of Economics
Rutgers Business School Newark and New Brunswick
Michelle M. Miller
Loyola Marymount University - Department of Economics
Berkeley Electronic Journal of Economic Analysis and Policy Advances, Vol. 10, No. 1, 2010
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
Date posted: January 11, 2012