Discussion paper

DP17117 Consumer Bankruptcy, Mortgage Default and Labor Supply

We specify and estimate a lifecycle model of consumption, housing demand
and labor supply in an environment where individuals may file for
bankruptcy or default on their mortgage. Uncertainty in the model
is driven by house price shocks, {education specific} productivity shocks, and catastrophic consumption events, while bankruptcy
is governed by the basic institutional framework in the US as implied
by Chapter 7 and Chapter 13. The model is estimated using micro data
on credit reports and mortgages combined with data
from the American Community Survey. We use the model to understand the relative importance of the two chapters (7 and 13) for each of our two education groups that differ in both preferences and wage profiles. We also provide an evaluation of the BACPCA reform. Our paper demonstrates importance of distributional effects of Bankruptcy policy.


Li, W, C Meghir and F Oswald (2022), ‘DP17117 Consumer Bankruptcy, Mortgage Default and Labor Supply‘, CEPR Discussion Paper No. 17117. CEPR Press, Paris & London. https://cepr.org/publications/dp17117