Christopher Palmer– Assistant professor of finance MIT

Abstract: Using new data on the balance sheets of personal bankruptcy filers, we develop an identification strategy to characterize debt accumulation patterns for debtors who delay filing for bankruptcy. We find that filers nudged to delay bankruptcy incur significantly more unsecured debt before filing but not secured debt. A large share of the additional debt incurred by delaying filers is “shadow debt” — debt not reported to credit bureaus, averaging 7.4% of total liabilities in bankruptcy filings. Borrowers with employment, medical, or marriage shocks do not have accumulation effects, suggesting that some borrowers are intentional in increasing debt before bankruptcy.