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Chapter 7 or 13: Are Client or Lawyer Interests Paramount?
The B.E. Journal of Economic Analysis & Policy (2011)
  • Lars Lefgren, Brigham Young University
  • Frank L McIntyre, Brigham Young University
  • Michelle Miller, Rutgers University
Abstract

Households often rely on professionals with specialized knowledge to make important financial decisions. In many cases, the professional’s financial interests are at odds with those of the client. We explore this problem in the context of personal bankruptcy. OLS, fixed effects, and IV estimates all show that attorneys play a central role in determining whether households file under Chapter 7 or Chapter 13 of the bankruptcy code. We present evidence suggesting that some attorneys maximize profits by steering households into Chapter 13 bankruptcy even when the households’ objective financial benefits are low and the probability of case dismissal is high. An attorney-induced Chapter 13 filing increases household legal fees and reduces the probability of long-term debt relief.

Keywords
  • consumer bankruptcy,
  • principal agent problems
Publication Date
October 5, 2011
Citation Information
Lars Lefgren, Frank L McIntyre and Michelle Miller. "Chapter 7 or 13: Are Client or Lawyer Interests Paramount?" The B.E. Journal of Economic Analysis & Policy Vol. 10 Iss. 1 (2011)
Available at: http://works.bepress.com/mcintyre/1/