Keywords

shadow debt, bankruptcy timing, cash flow effects

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.

Original Publication Citation

“Personal Bankruptcy and the Accumulation of Shadow Debt” with Benjamin Iverson, Taylor Nadauld, and Christopher Palmer

Document Type

Working Paper

Publication Date

2021

Publisher

National Bureau of Economic Research

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Associate Professor

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