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An Equilibrium Model of the Timing of Bankruptcy Filings

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  • Satyajit Chatterjee

    (Federal Reserve Bank of Philadelphia)

Abstract

Existing quantitative-theoretic models of bankruptcy do not make a distinction between bankruptcy and default. In reality, there is always a period of financial distress between default and a bankruptcy filing. The goal of this paper is to develop a model of the timing of bankruptcy filing that can account for financial distress (the period or state during which a delinquent debtor is being pursued by creditors) and informal bankruptcy (where a delinquent debtor does not file for bankruptcy but neither does she repay or be pursued by creditors). The model is used to shed light on time variation in the rate of bankruptcy filings during the last 25 years.

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  • Satyajit Chatterjee, 2015. "An Equilibrium Model of the Timing of Bankruptcy Filings," 2015 Meeting Papers 487, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:487
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    References listed on IDEAS

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    1. Li, Wenli & Sarte, Pierre-Daniel, 2006. "U.S. consumer bankruptcy choice: The importance of general equilibrium effects," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 613-631, April.
    2. Igor Livshits & James MacGee & Michèle Tertilt, 2007. "Consumer Bankruptcy: A Fresh Start," American Economic Review, American Economic Association, vol. 97(1), pages 402-418, March.
    3. David B. Gross, 2002. "An Empirical Analysis of Personal Bankruptcy and Delinquency," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 319-347, March.
    4. Scott Fay & Erik Hurst & Michelle J. White, 2002. "The Household Bankruptcy Decision," American Economic Review, American Economic Association, vol. 92(3), pages 706-718, June.
    5. Viktar Fedaseyeu, 2012. "Debt Collection Agencies and the Supply of Consumer Credit," Working Papers 442, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    6. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, vol. 75(6), pages 1525-1589, November.
    7. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(2), pages 289-309.
    8. Chatterjee, Satyajit & Gordon, Grey, 2012. "Dealing with consumer default: Bankruptcy vs garnishment," Journal of Monetary Economics, Elsevier, vol. 59(S), pages 1-16.
    9. Natalia Kovrijnykh & Igor Livshits, 2017. "Screening As A Unified Theory Of Delinquency, Renegotiation, And Bankruptcy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(2), pages 499-527, May.
    10. Athreya, Kartik B., 2002. "Welfare implications of the Bankruptcy Reform Act of 1999," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1567-1595, November.
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    Cited by:

    1. Xavier Mateos-Planas & Giulio Seccia, 2013. "Consumer Default with Complete Markets: Default-based Pricing and Finite Punishment," Working Papers 711, Queen Mary University of London, School of Economics and Finance.
    2. Lukasz A. Drozd & Ricardo Serrano-Padial, 2013. "Modeling the credit card revolution: the role of debt collection and informal bankruptcy," Working Papers 13-12, Federal Reserve Bank of Philadelphia.
    3. Kim, Hyeongjun & Cho, Hoon & Ryu, Doojin, 2018. "An empirical study on credit card loan delinquency," Economic Systems, Elsevier, vol. 42(3), pages 437-449.
    4. Kartik Athreya & Juan M. Sánchez & Xuan S. Tam & Eric R. Young, 2018. "Bankruptcy And Delinquency In A Model Of Unsecured Debt," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(2), pages 593-623, May.
    5. Natalia Kovrijnykh & Igor Livshits, 2017. "Screening As A Unified Theory Of Delinquency, Renegotiation, And Bankruptcy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(2), pages 499-527, May.
    6. Lukasz A. Drozd & Ricardo Serrano-Padial, 2017. "Modeling the Revolving Revolution: The Debt Collection Channel," American Economic Review, American Economic Association, vol. 107(3), pages 897-930, March.
    7. Igor Livshits, 2015. "Recent Developments In Consumer Credit And Default Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 594-613, September.
    8. Xavier Mateos-Planas & Giulio Seccia, 2013. "Consumer Default with Complete Markets: Default-based Pricing and Finite Punishment," Working Papers 711, Queen Mary University of London, School of Economics and Finance.
    9. Kyle F. Herkenhoff & Lee E. Ohanian, 2012. "Foreclosure delay and U.S. unemployment," Working Papers 2012-017, Federal Reserve Bank of St. Louis.
    10. Xavier Mateos-Planas, 2011. "Consumer default with complete markets," 2011 Meeting Papers 954, Society for Economic Dynamics.
    11. Xavier Mateos-Planas & Giulio Seccia, 2014. "Consumer default with complete markets: default-based pricing and finite punishment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(3), pages 549-583, August.
    12. Xavier Mateos-Planas & David Benjamin, 2012. "Formal vs. Informal Default in Consumer Credit," 2012 Meeting Papers 144, Society for Economic Dynamics.

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