Debtor Fraud in Consumer Debt Renegotiation

Slava Mikhed, Sahil Raina, Barry Scholnick and Man Zhang ()
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Slava Mikhed: https://www.philadelphiafed.org/our-people/slava-mikhed
Man Zhang: https://www.sydney.edu.au/business/about/our-people/academic-staff/man-zhang.html

No 22-35, Working Papers from Federal Reserve Bank of Philadelphia

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 (search for similar items in EconPapers)
JEL-codes: D82 D86 G21 G51 (search for similar items in EconPapers)
Pages: 70
Date: 2022-10-26
New Economics Papers: this item is included in nep-rmg
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DOI: 10.21799/frbp.wp.2022.35

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