Ben Iverson
Publications
Life After Death: A Field Experiment with Small Businesses on Information Frictions, Stigma, and Bankruptcy, with Shai Bernstein, Emanuele Colonnelli, and Mitch Hoffman, Journal of Finance, conditionally accepted.
Abstract
In an RCT with US small businesses, we document that a large share of firms are not well-informed about bankruptcy. Many assume that bankruptcy necessarily entails the death of a business and do not know about Chapter 11, where debts are renegotiated so that the business can continue operating. Firms also exhibit bankruptcy-related stigma, believing that bankruptcy is embarrassing, a sign of failure, and a negative signal to employees and customers. Short educational videos that address information or stigma increase knowledge and decrease stigma, both immediately and durably over 4 months. Videos increase reported interest in using Chapter 11 bankruptcy and increase intended debt and investment. However, we do not observe long-term real effects. Three years after the main RCT, we replicate our experiment on an entirely different sample of larger firms, all with substantial debt, and obtain largely similar results. A survey of bankruptcy attorneys and judges points to entrepreneurs' overconfidence and, to a lesser extent, bankruptcy costs as first-order frictions explaining the limited real impact of treatments that only address information and stigma.
The Dynamics of Retail Deposit Balances, with Bronson Argyle, Jason Kotter, Taylor Nadauld, and Christopher Palmer, Journal of Financial Economics, forthcoming.
Abstract
We investigate the dynamics of household deposits using account-level data from 12 million accounts across 154 U.S. credit unions. Significant skewness in the retail deposit distribution— with 10% of depositors controlling 70% of total deposits—means large-balance accounts drive aggregate retail deposit flows. On average, high-balance accounts become large after significant one-time inflows and are more likely to experience large, idiosyncratic drawdowns. Unlike low-balance households, high-balance retail depositors are not sensitive to interest rate shocks. Additional evidence suggests that overall retail deposit stickiness is driven by high-balance accounts that are used as medium-run liquidity stores rather than for interest income.
Can Small Businesses Survive Chapter 11?, with Edith Hotchkiss and Xiang Zheng, Journal of Finance, 81, No. 5 (October 2026): 2493-2542 (Lead Article).
Abstract
A majority of small U.S. businesses attempting to reorganize in bankruptcy fail to do so. Subchapter V of Chapter 11 (SubV) streamlines bankruptcy for small firms by reducing bankruptcy costs and negotiation frictions, and enables entrepreneurs to retain ownership. We show that many businesses reorganize under SubV that otherwise would liquidate. Creditor recoveries and post-bankruptcy survival rates are at least as high in SubV as in traditional Chapter 11s. Our results show the increase in reorganizations is not associated with continuation of unviable firms, and that creditors are not harmed by a shift in bargaining power toward small business owners.
Financial Costs of Judicial Inexperience, with Josh Madsen, Wei Wang, and Qiping Xu, Journal of Financial and Quantitative Analysis 58, No. 3 (May 2023): 1111-1143.
Abstract
Exploiting the random assignment of judges to corporate bankruptcy filings, we estimate financial costs of judicial inexperience. Despite new judges’ prior legal experience, formal education, and rigorous hiring process, their public Chapter 11 cases spend 19% more time in bankruptcy, realize 31% higher legal and professional fees, and 21% lower creditor recovery rates. Examining possible mechanisms, we find that new judges take longer to rule on motions and cases assigned to these judges file more plans of reorganization. Conservative estimates suggest that minor policy adjustments could increase creditor recoveries by approximately $16.8 billion for the public firms in our sample.
Can Gambling Increase Savings? Empircal Evidence on Prize-linked Savings Accounts, with Shawn Cole and Peter Tufano, Management Science 68, No. 5 (May 2022): 3282-3308.
Abstract
This paper studies the adoption and impact of prize-linked savings (PLS) accounts, which offer lottery-like payouts to individual account holders in lieu of interest. Using microlevel data from a bank in South Africa, we show that PLS is attractive to a broad group of individuals, with financially constrained individuals and those with no other deposit accounts particularly likely to participate. Individuals who choose to use PLS increase their total savings on average by 1% of annual income. Exploiting the random assignment of prizes, we present causal evidence that PLS substitutes for lottery gambling but is a complement to standard savings.
Sizing Up Corporate Restructuring in the COVID Crisis, with Robin Greenwood and David Thesmar, Brookings Papers on Economic Activity, Fall 2020 (Special Edition): 391-428.
Abstract
In the wake of the COVID-19 pandemic, the financial and legal system will need to deal with a surge of financial distress in the business sector. Some firms will be able to survive, while others will face bankruptcy and thus need to be liquidated or reorganized. Many surviving firms will need to be downsized or acquired. In normal times, this triage is supported by the court system, banks, and financial markets. The goal of this paper is to size up the coming surge of financial distress, list the challenges it presents in the current environment, and offer potential policy solutions. Overall, our analysis suggests that the two key issues will be court congestion and excess liquidation and failure of small firms.
Estimating the Need for Additional Bankruptcy Judges in Light of the COVID-19 Pandemic, with Jared Ellias and Mark Roe, 11 Harvard Business Law Review (Online Issue) 1 (2021).
Abstract
In this Article, we present the first effort to use an empirical approach to bolster the capacity of the bankruptcy system during a national crisis—here, the COVID-19 crisis. We provide two analyses, one using data from May 2020, very early on in the crisis, and another using data from September 2020, closer to the publication of this Article. Our analysis is based on an empirical observation: Historically, an increase in the unemployment rate has been a leading indicator of a rise in bankruptcy filings. If this historical trend continues to hold, the May 2020 unemployment rate of 13.3% would have predicted a substantial increase in bankruptcy filings and the lower September 2020 level would still predict noticeably increased filings. Clearly, governmental assistance, the unique features of the COVID-19 pandemic, the possibility of a quick economic recovery, and judicial triage are likely to reduce the volume of bankruptcies and increase the courts’ capacity to handle those that occur. It is also plausible that the recent unemployment spike will be short-lived—indeed, by September 2020, the rate had declined to 7.9%. Further, medical solutions to the underlying pandemic—such as the recent initial distribution of an effective vaccine—would further reduce the pressure on the bankruptcy system. Yet, even assuming that the worst-case scenarios are averted, our analysis suggests that a substantial investment in the bankruptcy system resources should be considered, even if only on a standby basis.
Our model assumes that Congress would like to have enough bankruptcy judges so that the average judge would not work more than the last bankruptcy peak in 2010, when the bankruptcy system was pressured and judges worked 50 hour weeks on cases on average. Because the bankruptcy system before the pandemic was not stretched as severely as it was prior to the 2010 financial crisis, it has some extra capacity to handle extra cases.
To keep judicial workload at 2010 levels, the bankruptcy system would need at least 50 additional temporary judges based on the number of unemployed in May 2020 who did not see themselves as temporarily unemployed. In the worst-case scenario, in which none of the May 2020 unemployed returned to work quickly, the bankruptcy system would have needed as many as 243 temporary judges—which would have represented a considerable expansion, even if only temporary, of the bankruptcy judiciary. The lower September 2020 unemployment rate points to a need for 20 temporary judges. Because of this model’s sensitivity to unemployment data, it reports a wide range of estimations for additional bankruptcy judgeships. We discovered a considerable administrative lag of about a year or more for appointing additional bankruptcy judges. Therefore, given that economic crises can unfurl much faster, embedding extra capacity in the bankruptcy judicial system in normal economic times is a prudent precaution to prepare for unexpected stress of additional bankruptcy petitions.
Bankruptcy Spillovers, with Shai Bernstein, Emanuele Colonnelli, and Xavier Giroud, Journal of Financial Economics 133, No. 3 (September 2019): 608-633.
Abstract
How do different bankruptcy approaches affect the local economy? Using US Census microdata, we explore the spillover effects of reorganization and liquidation on geographically proximate firms. We exploit the random assignment of bankruptcy judges as a source of exogenous variation in the probability of liquidation. We find that employment declines substantially in the immediate neighborhood of the liquidated establishments, relative to reorganized establishments. The spillover effects are highly localized and concentrate in nontradable and service sectors, consistent with a reduction in local consumer traffic and a decline in knowledge spillovers between firms. The evidence highlights the externalities that bankruptcy design can impose on nonbankrupt firms.
Asset Allocation in Bankruptcy, with Shai Bernstein and Emanuele Colonnelli, Journal of Finance 74, No. 1 (February 2019): 5-53 (Lead Article).
Abstract
This paper investigates the consequences of liquidation and reorganization on the allocation and subsequent utilization of assets in bankruptcy. Using the random assignment of judges to bankruptcy cases as a natural experiment that forces some firms into liquidation, we find that the long-run utilization of assets of liquidated firms is lower relative to assets of reorganized firms. These effects are concentrated in thin markets with few potential users and in areas with low access to finance. These findings suggest that when search frictions are large, liquidation can lead to inefficient allocation of assets in bankruptcy.
Get in Line: Chapter 11 Restructuring in Crowded Bankruptcy Courts, Management Science 64, Issue 11 (November 2018): 4967-5460.
Abstract
Bankruptcy costs depend not only on the laws that govern financial distress but also on the ability of the court to rehabilitate distressed firms. This paper tests whether Chapter 11 restructuring outcomes are affected by time constraints in busy bankruptcy courts. Using the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act as an exogenous shock to caseloads, I find that commercial banks report lower charge-offs on business lending when court caseloads decline, suggesting that the costs of financial distress are lower in less-congested courts. Further, court caseload affects how restructuring takes place. Less-busy bankruptcy judges liquidate fewer small firms, but more large firms. When caseload declines, large firms spend less time in court and firms that are dismissed from court are less likely to refile for bankruptcy. In addition, firms are less likely to sell assets or obtain debtor-in-possession financing in less-busy courts.
The Ownership and Trading of Debt Claims in Chapter 11 Restructurings, with Victoria Ivashina and David Smith, Journal of Financial Economics 119, Issue 2 (February 2016): 316-335.
Abstract
Using a novel data set that covers individual debt claims against 136 bankrupt US companies and includes information on a subset of claims transfers, we provide new empirical insight regarding how a firm’s debt ownership relates to bankruptcy outcomes. Firms with higher debt concentration at the start of the case are more likely to file prearranged bankruptcy plans, to move quickly through the restructuring process, and to emerge successfully as independent going concerns. Moreover, higher ownership concentration within a debt class is associated with higher recovery rates to that class. Trading of claims during bankruptcy concentrates ownership further, but this trading is not associated with subsequent improvements in bankruptcy outcomes and could, at the margin, increase the likelihood of liquidation.
Subprime Foreclosures and the 2005 Bankruptcy Reform, with Donald Morgan and Matthew Botsch, Federal Reserve Bank of New York Economic Policy Review 18, No. 1 (March 2012): 47-57.
Abstract
After the bankruptcy abuse reform (BAR) took effect in October 2005, foreclosures on subprime mortgages surged nationwide. Prior to BAR, overly indebted borrowers could file bankruptcy to free up income to pay their mortgage by discharging unsecured debts; BAR eliminated that option for better-off filers through a means test and other requirements, making it more difficult to save one’s home by filing bankruptcy. This study suggests that BAR was associated with more subprime foreclosures; BAR’s effects were greater in states with high bankruptcy exemptions, as theory predicts. For a state with an average home equity exemption, the subprime foreclosure rate after BAR rose 11 percent relative to average before the reform; given the number of subprime mortgages nationwide, that translates into 29,000 additional subprime foreclosures per quarter nationwide.
Working Papers
Spillovers from Financial Distress and Bankruptcy: Evidence and Implications for the Real Economy, with Maxwell Dunbar, March 2026.
In preparation for publication in The Annual Review of Financial Economics
Abstract: Bankruptcy reallocates assets, labor, and risk across firms and households, yet its consequences extend far beyond those directly involved. This article reviews recent empirical and theoretical advances on spillovers from financial distress and bankruptcy—the transmission of financial distress through labor markets, product markets, supply chains, financial networks, and social interactions. We bring together evidence on how corporate bankruptcy affects workers, competitors, suppliers, and local economies, and how these effects aggregate to influence economic outcomes more broadly. We also highlight emerging evidence on consumer bankruptcy spillovers within peer and family networks. The literature consistently shows that these spillovers are substantial and operate through multiple channels. Throughout, we identify open questions about their welfare implications, the design of optimal bankruptcy policy, and opportunities to better characterize spillovers that have not yet been explored.
Racial Disparities and Bias in Consumer Bankruptcy, with Bronson Argyle, Sasha Indarte, and Christopher Palmer, July 2025.
Revise and Resubmit, Journal of Finance
Abstract: Using the near universe of US bankruptcy cases linked to filer, trustee, and judge race data, we show that minority filers are significantly more likely to be dismissed without debt relief. To test whether racial bias contributes to these disparities, we formalize new econometric results for a “differences-in-disparities” research design that, in contrast to outcome tests, does not require specifying decision-maker objectives. We find random assignment to White trustees increases dismissal rates for minority filers in Chapter 13 but not in Chapter 7, where trustee discretion is limited. Our test indicates racial bias is an important factor in bankruptcy dismissals.
Personal Bankruptcy and the Accumulation of Shadow Debt, with Bronson Argyle, Taylor Nadauld, and Christopher Palmer, December 2021.
Abstract: Before filing for bankruptcy, many households incur debt not reported to credit bureaus through the nonpayment of goods and services. Such “shadow debt” is an important liquidity source for distressed debtors; using new liability-level data, we estimate 44% of unsecured debt reported at bankruptcy is shadow debt. We use wage garnishment rules to isolate shocks to the benefits of bankruptcy filing and test for a particular reliance on shadow debt immediately before bankruptcy. We find that a $100 decrease in monthly wage garnishing results in an increase in shadow debt of $6,000 and an extra month delay in bankruptcy filing.
Trade Creditors' Information Advantage, with Victoria Ivashina, January 2018.
Abstract: Using information on the sales of debt claims for 132 U.S. Chapter 11 bankruptcy cases, we show that large trade creditors’ decisions to sell receivables of a distressed company in bankruptcy are predictive of lower recovery rates, and that in such cases these creditors sell ahead of less informed suppliers and other creditors. This result is especially pronounced for more opaque distressed firms, when trade creditors’ information advantage is likely largest. This evidence shows that suppliers that extend significant amounts of trade credit hold private information about their trade partners. Trade creditors who are geographically closer or in similar industries tend to lend the most, suggesting that these are two channels through which suppliers hold an information advantage.
