Financial Distress Research Project

In the United States, low- and moderate-income (“LMI”) individuals experience personal financial crisis through the lens of law. Small claims court debt collection, bankruptcy court, and contract negotiations with creditors dominate the experience. But LMI individuals are priced out of the private attorney market, and resource constraints prevent free legal services providers from offering traditional legal assistance to all LMI individuals in financial distress. The result is a challenge: propose and test ways to provide low-cost self-help legal assistance to LMI individuals in financial distress. This study assesses legal and financial outcomes of LMI individuals when randomly assigned to two treatment contrasts. The first treatment contrast is a set of innovative, behaviorally informed, cartoon-based self-help packets covering the legal aspects of financial crisis versus a traditional attorney-client relationship with a legal aid attorney covering the same scope. The second contrast is “live” financial counseling (Internet or telephone call, as required by Congress to obtain a bankruptcy discharge) versus financial counseling delivered via a paper packet. Outcome variables include litigation results from court files; credit scores and over 200 credit attributes from a credit reporting agency; and survey responses focusing on financial knowledge and stress levels. Each of the four cells in the saturated design will have 300 subjects. Available cost information will facilitate efficiency comparisons.