Personal Bankruptcy and the Accumulation of Shadow Debt

72 Pages Posted: 14 Jun 2021 Last revised: 20 Jun 2022

See all articles by Bronson Argyle

Bronson Argyle

Brigham Young University - Department of Finance

Benjamin Charles Iverson

Brigham Young University

Taylor Nadauld

Brigham Young University

Christopher Palmer

MIT Sloan; National Bureau of Economic Research (NBER)

Date Written: June 2021

Abstract

Compiling new liability-level data from the balance sheets of personal bankruptcy filers, we document that a sizable share of reported liabilities are “shadow debt,” debt not reported to credit bureaus that often arises from the non-payment of goods and services. We use this new data to evaluate how debtor cash flows affect when consumers file for bankruptcy and how much debt they have at bankruptcy. We find that filers respond to a quasi-exogenous $100 increase in monthly cash flows by delaying filing by an average of one month and by increasing unsecured indebtedness by $4,000 in the months preceding filing. A large share of the additional debt incurred by delaying filers is shadow debt, and our effects are concentrated among filers without employment, health, or marriage shocks.

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Suggested Citation

Argyle, Bronson and Iverson, Benjamin Charles and Nadauld, Taylor and Palmer, Christopher, Personal Bankruptcy and the Accumulation of Shadow Debt (June 2021). NBER Working Paper No. w28901, Available at SSRN: https://ssrn.com/abstract=3866333

Bronson Argyle (Contact Author)

Brigham Young University - Department of Finance ( email )

United States

Benjamin Charles Iverson

Brigham Young University ( email )

United States

Taylor Nadauld

Brigham Young University ( email )

Christopher Palmer

MIT Sloan ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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