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Federal Reserve Bank of Richmond
Working Paper
The Persistence of Financial Distress
Kartik B. Athreya
Jose Mustre-del-Rio
Juan M. Sanchez

Using recently available proprietary panel data, we show that while many (35%) US consumers experience financial distress at some point in the life cycle, most of the events of financial 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.

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Kartik B. Athreya & Jose Mustre-del-Rio & Juan M. Sanchez, The Persistence of Financial Distress, Federal Reserve Bank of Richmond, Working Paper 17-14, 09 Nov 2017.
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Keywords: default; financial distress; consumer credit; credit card debt
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