Available at SSRN:
https://ssrn.com/abstract=4788212 or http://dx.doi.org/10.21799/frbp.wp.2024.10
Abstract:
The author studies how bankruptcy law firm advertisements affect credit recovery of households in financial distress. Exploiting the border discontinuity strategy associated with the geographic unit in which local TV advertisements are sold, the author empirically uncovers bankruptcy filings and credit recovery related to exogenous variations in bankruptcy law firm advertisements. The author first documents a significant advertising effect on filing rates and shows that advertising-induced filers are similar to existing filers. The author then finds a positive effect of advertisements on credit outcomes including credit score, new homeownership, and foreclosure. The author interprets these findings as evidence that lawyers address information frictions in households’ assessment of the bankruptcy option.
Commentary:
When paired with other research, including Why Don't More Households File for Bankruptcy?, which examined how as many of 15% of households would benefit from filing bankruptcy, but don't, this paper gives meaningful insight into how the advertising and free consultation by consumer bankruptcy attorneys overcomes, at least in some small degree, the frictions and fictions that keep folks from even considering bankruptcy.
It is interesting that this finds that advertising does not change or broaden the demographics of bankruptcy filers, but instead increase the numbers of filers in those groups.
Further, this paper also finds that "ad-induced" filers have better post-bankruptcy outcomes in terms of credit risk scores, new home ownership and avoidance of foreclosure.
And no, the Law Office of John T. Orcutt did not commission this research to justify our ads. Those speak for themselves.
To read a copy of the transcript, please see:
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