Working Paper

Debtor Fraud in Consumer Debt Renegotiation

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;

https://doi.org/10.21799/frbp.wp.2022.35

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2022-10-26

Number: 22-35