BANKRUPTCY AND DELINQUENCY IN A MODEL OF UNSECURED DEBT

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

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Original languageEnglish
Pages (from-to)593-623
Journal / PublicationInternational Economic Review
Volume59
Issue number2
Early online date4 Feb 2018
StatePublished - May 2018

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.

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Full text of this publication does not contain sufficient affiliation information. With consent from the author(s) concerned, the Research Unit(s) information for this record is based on the existing academic department affiliation of the author(s).

Citation Format(s)

BANKRUPTCY AND DELINQUENCY IN A MODEL OF UNSECURED DEBT. / ATHREYA, KARTIK; SÁNCHEZ, JUAN M.; TAM, XUAN S.; YOUNG, ERIC R.

In: International Economic Review, Vol. 59, No. 2, 05.2018, p. 593-623.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal