An Empirical Analysis of Personal Bankruptcy and Delinquency

David B. Gross and Nicholas Souleles

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: This paper uses a unique new panel data set of credit card accounts to analyze credit card delinquency and more generally 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 a reduction in the social stigma of default. 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 the stigma effect.

Keywords: Personal bankruptcy; Forecasting default; Credit risk management; Consumer credit; Credit cards (search for similar items in EconPapers)
JEL-codes: E21 E51 G21 G33 (search for similar items in EconPapers)
Date: 1999-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: An Empirical Analysis of Personal Bankruptcy and Delinquency (2002)
Working Paper: An Empirical Analysis of Personal Bankruptcy and Delinquency (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:wop:pennin:98-28

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