claim: The primary means of enforcement of legal liabilities is through the seizure of debtors’ assets. However, debtors can shield their assets in various ways and thereby reduce the power of enforcement. This paper studies the circumstances under which a debtor would choose to shield assets and the value of assets that would be shielded. A key idea is that borrower’s wealth mutes shielding incentives. Intuitively, avoiding debts through shielding requires that enough assets will be shielded, for...

evidence_quote: Shielding of Assets and Lending Contracts (Forthcoming, International Review of Law & Economics) Yonathan A. Arbel* ABSTRACT The primary means of enforcement of legal liabilities is through the seizure of debtors’ assets. However, debtors can shield their assets in various ways and thereby reduce the power of enforcement. This paper studies the circumstances under which a debtor would choose to shield assets and the value of assets that would be shielded. A key idea is that borrower’s wealth mutes shielding incentives. Intuitively, avoiding debts through shielding requires that enough assets will be shielded, for else the debts can be collected from exposed assets. A wealthier debtor would...

citation: Yonathan A. Arbel, Shielding of Assets and Lending Contracts, International Review of Law & Economics (2016).

confidence: machine-linked

limitations: Machine-linked claim. Use the evidence quote and PDF before treating it as a quotation or as a complete statement of the paper's position.


claim: A debtor's wealth significantly influences their decision to shield assets, as wealthier individuals would need to shield a larger volume of assets at greater cost for it to be effective against creditors. his paper develops a theory of asset shielding to explain this behavior, arguing that richer debtors often find it irrational to shield, while poorer debtors pose a higher shielding risk which impacts credit markets.

paper_title: Shielding of Assets and Lending Contracts

evidence_quote: ete lending contracts, explaining the role of equity agreements, equity cushions and collateral, and debt forgiveness, and explore the some of the policy implications. 1. INTRODUCTION The primary means of enforcement of civil legal liabilities, such as debt contracts, taxes, or tort judgments, is through the seizure of debtors’ assets. However, as Section 2 discusses, debtors are often in a position to circumvent asset seizure by the use of such methods as hiding cash, transferring ownership of property to family members, and using shell corporations. After shielding, creditors will be dissuaded from collecting their debts and debtors may file for bankruptcy and discharge their...