Debtor Fraud in Consumer Debt Renegotiation

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: 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