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An Empirical Analysis of Personal Bankruptcy and Delinquency

46 Pages Posted: 6 Aug 2001  

David B. Gross

Compass Lexecon

Nicholas S. Souleles

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: August 2001


This paper uses a new panel data set of credit card accounts to analyze credit card delinquency, personal bankruptcy, and the stability of credit risk models. We estimate duration models for default and assess the relative importance of different variables in predicting default. We investigate how the propensity to default has changed over time, disentangling the two leading explanations for the recent increase in default rates - a deterioration in the risk - composition of borrowers versus an increase in borrowers' willingness to default due to declines in default costs, including social, information, and legal costs. Even after controlling for risk-composition and other economic fundamentals, the propensity to default significantly increased between 1995 and 1997. By contrast, increases in credit limits and other changes in risk-composition explain only a small part of the change in default rates. Standard default models appear to have missed an important time-varying default factor, consistent with a decline in default costs.

Suggested Citation

Gross, David B. and Souleles, Nicholas S., An Empirical Analysis of Personal Bankruptcy and Delinquency (August 2001). NBER Working Paper No. w8409. Available at SSRN:

David B. Gross

Compass Lexecon ( email )

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Nicholas S. Souleles (Contact Author)

University of Pennsylvania - Finance Department ( email )

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National Bureau of Economic Research (NBER)

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