Strategic default behavior suggests that the default process is not only a matter of inability to pay. Economic costs … and benefits affect the incidence and timing of defaults. As with prior research, the authors find that people default … strategically as their home value falls below the mortgage value (exercise the put option to default on their first mortgage). While …

strategically utilize the renegotiation option as a bankruptcy threat, pushing down the debt value below the potential liquidation … renegotiation option. In the model, creditors decide when to withdraw their funding and equityholders can renegotiate the contract … value of the firm. In such a scenario, a deterred default resulting from emergency capital injections could be detrimental …