Do Payday Loans Cause Bankruptcy?

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Abstract
Payday loan applicants' first loan approval increases the two-year Chapter 13 bankruptcy filing rate by 2.48 percentage points. This effect is identified off a regression discontinuity in the loan approval process, using matched individual-level administrative records on payday borrowing and personal bankruptcy. Small payday loans suffice to cause bankruptcy because loan applicants are financially stressed, and repeated expensive borrowing increases the liquid-debt interest burden at the time of bankruptcy filing by 11%.

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