Working Paper

The Persistence of Financial Distress.

Abstract: Using recently available proprietary panel data, we show that while many (35%) US consumers experience fi nancial distress at some point in the life cycle, most of the events of nancial distress are primarily concentrated in a much smaller proportion of consumers in persistent trouble. Roughly 10% of consumers are distressed for more than a quarter of the life cycle, and less than 10% of borrowers account for half of all distress events. These facts can be largely accounted for in a straightforward extension of a workhorse model of defaultable debt that accommodates a simple form of heterogeneity in time preference but not otherwise.

Keywords: Consumer credit; Fi nancial distress; credit card debt; Default;

JEL Classification: E44; D60; E21;

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Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2017-11-27

Number: RWP 17-15

Pages: 36 pages