Bankruptcy and Delinquency in a Model of Unsecured Debt
74 Pages Posted: 6 Oct 2015
Date Written: 2012
At an aggregate level, formal default via bankruptcy and informal default via delinquency are both quantitatively important in consumer credit markets. In this paper, we use a variety of microeconomic data sources to construct a salient set of facts on the use of unsecured debt and both formal and informal default. We then show that these facts, which describe both the cross-sectional and dynamic behavior of borrowing and default, can be well understood through a quantitative model of consumer credit with empirically plausible representations of labor market risks, social safety nets, and debt-default options.
Keywords: Consumer Debt, Bankruptcy, Default, Life cycle, Idiosyncratic risk
JEL Classification: E43, E44, G33
Suggested Citation: Suggested Citation