Racial Differences in Consumer Bankruptcy Outcomes

Paul Goldsmith-Pinkham, Assistant Professor of Finance, Yale School of Management

Abstract: Using administrative data on consumer bankruptcy filings, we study the difference in bankruptcy filing behavior for Black and non-Black Americans. We first document four facts: 1) Black bankruptcy filers are 27 percent less likely to successfully discharge their debt compared to a non-Black filers, and are more than twice as likely to file for Chapter 13, the more stringent chapter of consumer bankruptcy. 2) Chapter choice is extremely predictable out-of-sample using only balance sheet characteristics at time of filing, but that the prediction loadings do not coincide with things typically associated with Chapter 13, such as homeownership. 3) 80% of the Black-White gap in chapter choice can be explained by balance sheet characteristics, but the remaining piece appears driven by other factors; 4) the gap between discharge and dismissal probability for Chapter 13 and Chapter 7 remains near-constant regardless of the predicted probability of Chapter 13. We then focus on explanations for the Black-White gap in discharge rates in both the extensive margin through chapter choice and intensive margin through conditional success rates. Using new data on bankruptcy attorneys, we study the extent to which attorneys can have a causal (and disparate) impact on bankruptcy discharge rates.

Paul Goldsmith-Pinkham's research interests include consumer & corporate finance, econometrics, and social networks. His current work focuses on assessing the costs and benefits of debtor protection policies and understanding the role that consumer debt plays in the macroeconomy. Paul's research also studies machine learning techniques applied to economic questions. Before joining Yale, Paul was a Research Economist at the Federal Reserve Bank of New York. He earned a bachelor’s degree in economics from Swarthmore College, and a PhD in economics from Harvard University.