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 BAPCPA reform. Our paper

demonstrates importance of distributional effects of Bankruptcy policy.