Changes in Personal Bankruptcy Protection Laws : The Impact to Home Mortgage Lending

In the U.S., individuals who file for bankruptcy can protect a certain amount of property from creditor liquidation during the debt settlement process. Our analysis exploits changes in these laws to determine the impact on home mortgage lending. We find that the additional debtor protection reduces the likelihood of denial for home purchases and loan applications that are secured by a first lien. However, the denial rate of non-first lien purchases and home improvement loans increases as a result of higher exemption limits. We also find that applications in each affected census tract increase, leading to more approvals, loan issuance, and denials as a result of each change