by: Kartik Athreya, José Mustre-del-Río and Juan M. Sanchez
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RWP 17-15, November 2017; Revised September 2018

Using proprietary panel data, we show that many US consumers experience financial distress (35% when distress is defined by having debt in severe delinquency, e.g.) at some point in their lives. However, most distress events are concentrated among a much smaller proportion of consumers in persistent trouble: fewer 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 unsecured debt with informal default that accommodates a simple form of heterogeneity in time preference.

JEL Classification: D60, E21, E44

Article Citation

  • Arthreya, Kartik, José Mustre-del-Río, and Juan M. Sánchez. 2017. “The Persistence of Financial Distress.” Federal Reserve Bank of Kansas City, Research Working Paper no. 17-15, November. Available at External Linkhttps://doi.org/10.18651/RWP2017-15

Related Research

  • Athreya, K., J. M. Sánchez, X. S. Tam and E. R. Young, "Bankruptcy and Delinquency in a Model of Unsecured Debt," Technical Report, Federal Reserve Bank of St. Louis, 2017, forthcoming International Economic Review.

  • Fulford, S. L. and S. Schuh, "Credit Card Utilization and Consumption over the Life Cycle and Business Cycle," Technical Report, Federal Reserve Bank of Boston, September 2017.

  • Livshits, I., J. MacGee and M. Tertilt, "Consumer Bankruptcy: A Fresh Start," The American Economic Review 97 (March 2007), 402–418. 

Author

José Mustre-del-Río

Research and Policy Officer

José Mustre-del-Río is a Research and Policy Officer at the Federal Reserve Bank of Kansas City. He joined the Economic Research Department in August 2011. Prior to joining the d…