BANKRUPTCY AND DELINQUENCY IN A MODEL OF UNSECURED DEBT

Kartik Athreya, Juan M. Sánchez, Xuan S. Tam and Eric Young
Authors registered in the RePEc Author Service: Juan M. Sanchez

International Economic Review, 2018, vol. 59, issue 2, 593-623

Abstract: This article documents and interprets a fact central to the dynamics of informal consumer debt default. We observe that for individuals 60– 90 days late on payments, (i) 85% make payments during the next quarter, and (ii) 40% reduce their debt. To understand these facts, we develop a quantitative model of debt delinquency and bankruptcy. Our model reproduces the dynamics of delinquency and suggests an interpretation of the data in which lenders frequently reset loan terms for delinquent borrowers, typically offering partial debt forgiveness, instead of a blanket imposition of the “penalty rates†most unsecured credit contracts specify.

Date: 2018
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Citations: View citations in EconPapers (14)

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https://doi.org/10.1111/iere.12281

Related works:
Working Paper: Bankruptcy and Delinquency in a Model of Unsecured Debt (2016)
Working Paper: Bankruptcy and delinquency in a model of unsecured debt (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:iecrev:v:59:y:2018:i:2:p:593-623

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