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An Empirical Analysis of Personal Bankruptcy and Delinquency

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  • David B. Gross

Abstract

This article uses a new dataset 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. Even after controlling for risk composition and economic fundamentals, the propensity to default significantly increased between 1995 and 1997. Standard default models missed an important time-varying default factor, consistent with a decline in default costs. Copyright 2002, Oxford University Press.

Suggested Citation

  • David B. Gross, 2002. "An Empirical Analysis of Personal Bankruptcy and Delinquency," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 319-347, March.
    • Handle: RePEc:oup:rfinst:v:15:y:2002:i:1:p:319-347
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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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