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Bankruptcy and Debt Portfolios

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  • Winfried Koeniger

    (Queen Mary, University of London)

  • Thomas Hintermaier

    (Institute for Advanced Studies, Vienna (IHS))

Abstract

We use a heterogeneous-agent model, in which labor income is risky and markets are incomplete, to analyze consumer debt portfolios of secured and unsecured debt in the US. Compared with previous research, we emphasize the role of durables which not only generate utility but also serve as debt collateral. This allows a meaningful joint analysis of secured and unsecured debt and introduces endogenous bankruptcy costs: durables need to be sold to service secured debt in bankruptcy procedures which implies forgone durable utility since adjusting durables is costly. We solve the model numerically and apply it to understand bankruptcy and consumer debt portfolios in the US and their evolution over time.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 348.

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Date of creation: 2009
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Handle: RePEc:red:sed009:348

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  1. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 255-296, 03.
  2. Mateos-Planas, Xavier, 2009. "A model of credit limits and bankruptcy with applications to welfare and indebtedness," Discussion Paper Series In Economics And Econometrics 0910, Economics Division, School of Social Sciences, University of Southampton.
  3. Fabrizio Zampolli & Matt Waldron, 2006. "Household debt, house prices, and consumption in the UK: a theoretical analysis of recent developments," Computing in Economics and Finance 2006 431, Society for Computational Economics.
  4. Igor Livshits & James MacGee & Michèle Tertilt, 2010. "Accounting for the Rise in Consumer Bankruptcies," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 165-93, April.
  5. Hintermaier, Thomas & Koeniger, Winfried, 2010. "On the Evolution of the US Consumer Wealth Distribution," CEPR Discussion Papers 7850, C.E.P.R. Discussion Papers.
  6. Igor Livshits & James MacGee & Michele Tertilt, 2005. "Consumer Bankruptcy: A Fresh Start," Discussion Papers 04-011, Stanford Institute for Economic Policy Research.
  7. Marina Pavan, 2003. "Consumer Durables and Risky Borrowing: the Effects of Bankruptcy Protection," Boston College Working Papers in Economics 573, Boston College Department of Economics, revised 01 May 2005.
  8. Caporale, Tony & Grier, Kevin B, 2000. "Political Regime Change and the Real Interest Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 320-34, August.
  9. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
  10. Kehoe, Timothy J & Levine, David K, 2001. "Liquidity Constrained Markets versus Debt Constrained Markets," Econometrica, Econometric Society, vol. 69(3), pages 575-98, May.
  11. Kartik Athreya & Xuan S. Tam & Eric R. Young, 2012. "A Quantitative Theory of Information and Unsecured Credit," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 153-83, July.
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