We propose a parsimonious model with adverse selection where delinquency, renegotiation, and bankruptcy all occur in … equilibrium as a result of a simple screening mechanism. A borrower has private information about her cost of bankruptcy, and a …, and thus become delinquent. The lender renegotiates with some delinquent borrowers. In the absence of renegotiation …

. Finally, we find that those debtors who misreported income had a lower probability of default on their debt repayment plans …

We ask whether the correlation between mortgage leverage and default is due to moral hazard (the causal effect of … leverage must weigh default-prevention against market distortions due to adverse selection …

specify default, renegotiation and reorganization policies. Renegotiation entails a redistribution of social surplus, while … monitoring is too costly, renegotiation leads to reorganization, which resembles actual bankruptcy practice. We calibrate the …-trivial choice between alternative bankruptcy procedures. Given limited commitment and asymmetric information, financial contracts …

, and increases loan interest rates and default probabilities …