"This paper examines how filing for bankruptcy under Chapter 13 helps financially distressed debtors save their homes. Filing under Chapter 13 stops lenders from foreclosing and gives debtors extra time to repay mortgage arrears, but does not reduce the total amount owed. We develop a model of...

We provide a model with endogenous portfolios of secured and unsecured household debt. Secured debt is collateralized by durables whereas unsecured debt can be discharged in bankruptcy procedures. We show that the model matches the main quantitative characteristics of observed wealth and debt...