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Friends with bankruptcy protection benefits

Author

Listed:
  • Kleiner, Kristoph
  • Stoffman, Noah
  • Yonker, Scott E.

Abstract

We show information spillovers limit the effectiveness of targeted debt relief programs. We study individuals who learn about the likelihood of debt relief from the recent experiences of workplace peers filing for bankruptcy protection. Peers granted bankruptcy can discharge debts, while peers facing dismissal lose all protections. Exploiting the random assignment of judges to bankruptcy cases, we determine that individuals with a “dismissed peer” are significantly less likely to file for bankruptcy or enter foreclosure. We highlight a novel channel relating social networks to household finances and identify additional costs of granting individual debt relief imposed on lenders.

Suggested Citation

  • Kleiner, Kristoph & Stoffman, Noah & Yonker, Scott E., 2021. "Friends with bankruptcy protection benefits," Journal of Financial Economics, Elsevier, vol. 139(2), pages 578-605.
    • Handle: RePEc:eee:jfinec:v:139:y:2021:i:2:p:578-605
    DOI: 10.1016/j.jfineco.2020.08.003
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    Cited by:

    1. Stephen G. Dimmock & William C. Gerken & Tyson Van Alfen, 2021. "Real Estate Shocks and Financial Advisor Misconduct," Journal of Finance, American Finance Association, vol. 76(6), pages 3309-3346, December.

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    More about this item

    Keywords

    Debt relief; Personal bankruptcy; Foreclosure; Peer effects; Social networks; Bankruptcy juadges; Random assignment;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • G4 - Financial Economics - - Behavioral Finance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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