Debtor Fraud in Consumer Debt Renegotiation

72 Pages Posted: 28 Oct 2022

See all articles by Vyacheslav Mikhed

Vyacheslav Mikhed

Federal Reserve Bank of Philadelphia

Sahil Raina

University of Alberta - School of Business

Barry Scholnick

University of Alberta - Department of Marketing, Business Economics & Law

Man Zhang

National University of Singapore, Institute of Real Estate and Urban Studies

Date Written: October 1, 2022

Abstract

We study how forcing financially distressed consumer debtors to repay a larger fraction of debt can lead them to misreport data fraudulently. Using a plausibly exogenous policy change that required debtors to increase repayment to creditors, we document that debtors manipulated data to avoid higher repayment. Consistent with deliberate fraud, data manipulators traveled farther to find more lenient insolvency professionals who, historically, approved more potentially fraudulent filings. Finally, we find that those debtors who misreported income had a lower probability of default on their debt repayment plans, consistent with having access to hidden income.

Keywords: consumer credit, fraud, data misreporting, financial distress, default

JEL Classification: G21, G51, D82, D86

Suggested Citation

Mikhed, Vyacheslav and Raina, Sahil and Scholnick, Barry and Zhang, Man, Debtor Fraud in Consumer Debt Renegotiation (October 1, 2022). FRB of Philadelphia Working Paper No. 22-35, Available at SSRN: https://ssrn.com/abstract=4259610 or http://dx.doi.org/10.21799/frbp.wp.2022.35

Vyacheslav Mikhed (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Sahil Raina

University of Alberta - School of Business ( email )

2-32B Business Building
Edmonton, Alberta T6G 2R6
Canada

HOME PAGE: http://sites.ualberta.ca/~sraina/

Barry Scholnick

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

Man Zhang

National University of Singapore, Institute of Real Estate and Urban Studies ( email )

3 Research Link #04-02 Innovation 4.0 Singapore
Singapore, 117602
Singapore

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