Bankruptcy and Debt Portfolios
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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