skip to primary navigationskip to content
 

CF Weekly Workshop - by Xuan Tam - Bankruptcy and Delinquency in a Model of Unsecured Debt

When Oct 23, 2012
from 05:00 PM to 06:00 PM
Where Sidgwick Hall, Newnham College
Contact Name
Add event to calendar vCal
iCal

Xuan Tam - CFAP, Cambridge Judge Business School, University of Cambridge

Bankruptcy and Delinquency in a Model of Unsecured Debt

(with Kartik Athreya, Juan M. Sanchez, Eric Young)

 

Abstract:

Limited commitment for the repayment of consumer debt comes from two places:

formal laws granting a partial or complete discharge for debts under certain circumstances, or “bankruptcy,” and informal default and renegotiation, or “delinquency.” In the US, both channels are used routinely. The usefulness of each of these routes as a way out of debt depends on the costs and benefits available through the other: delinquency exposes a household to collections processes initiated by lenders, while formal bankruptcy appears to carry more visible consequences for future transactions, including restrictions to even secured forms of credit. This paper is the first, to our knowledge, to evaluate unsecured consumer credit markets in the presence of both bankruptcy and delinquency. We show that these two options indeed interact in important ways. Specifically, we show that stricter control of delinquency, as defined by a relatively high ability to garnish wages, leads to more bankruptcy and lower welfare. Similarly, we find that eliminating the bankruptcy option altogether leads to a modest increase in delinquency. Perhaps most interestingly, we show that interest-rate ceilings, even though they have the standard effects in terms of limiting credit access, improve ex-ante welfare for all. This occurs because the inability to reprice debt after delinquency allows a useful level of “state contingency” in debt that does not increase average borrowing costs substantially. In essence, households have to pay the costs of delinquency in order to get the benefits of a low interest rate.

« November 2018 »
November
MoTuWeThFrSaSu
1234
567891011
12131415161718
19202122232425
2627282930

RSS Feed Latest news

Winners of the Best Student Paper Award 2018 announced

Aug 21, 2018

Cambridge Finance is proud to announce the winners of the Best student Paper Award for 2017-2018

View all news

Upcoming events

Cambridge Finance Workshop - Hubert Kempf

Nov 22, 2018

Room W4.05, Cambridge Judge Business School

Cambridge Finance Workshop - Jean-Edouard Colliard

Jan 24, 2019

Room W4.05, Cambridge Judge Business School

Cambridge Finance Workshop -Naomi R. Lamoreaux

Feb 07, 2019

W2.02, Cambridge Judge Business School

Previous events

Upcoming events