Abstract:

Debt relief is a “fresh start” policy that writes down unsecured debt for granted applicants. An argument is that this provides a second chance for failed entrepreneurs. We use the full universe of Danish debt relief applicants to track selection into self employment after receiving debt relief. Using the assignment of trustees as quasi-random variation, we find that granted applicants are more likely to become self employed. The reentry of prior self employed applicants primarily drives the increase, and our findings suggest they start in industries where they have prior experience. We compare the performance of granted applicants who select into self employment relative to a sample of individuals who start businesses in the same industries. Preliminary findings indicate that those granted debt relief establish relatively smaller companies, have lower survival rates, while conditional on surviving, they exhibit the same growth rates.