This paper argues that the U.S. bankruptcy reform of 2005 played an important role in the mortgage crisis and the … current recession. When debtors file for bankruptcy, credit card debt and other types of debt are discharged--thus loosening … debtors' budget constraints. Homeowners in financial distress can therefore use bankruptcy to avoid losing their homes, since …

In this paper we examine the relationship between homeowners' bankruptcy decisions and their mortgage default decisions … and the relationship between homeowners' bankruptcy decisions and lenders' decisions to foreclose. In theory, both … relationships could be either substitutes or complements. Bankruptcy and default tend to be substitutes because homeowners' budgets …

This paper discusses four bankruptcy-related policy issues. First, what is the economic rationale for having a … bankruptcy procedure at all and what defines an economically efficient bankruptcy procedure? Second, why did the number of U ….S. bankruptcy filings increase so dramatically between 1980 and 2005? Third, a major bankruptcy reform went into effect in the U …

This paper examines how filing for bankruptcy under Chapter 13 helps financially distressed debtors save their homes …. We develop a model of debtors' decisions to default on their mortgages and file for bankruptcy under Chapter 13 and … evaluate the model using new data on Chapter 13 bankruptcy filers. We also examine the effect of allowing bankruptcy judges to …

From 1980 to 2004, the number of personal bankruptcy filings in the United States increased more than five-fold, from … 288,000 to 1.5 million per year. Lenders responded to the high filing rate with a major lobbying campaign for bankruptcy … reform that led to the adoption in 2005 of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which made …

This paper surveys research on the economics of corporate and personal bankruptcy law. Since the literatures on the two … types of bankruptcy have developed in isolation of each other, a goal of the survey is to draw out parallels between them …

The U.S. personal bankruptcy system functions as a bankruptcy system for small businesses as well as consumers, because … file for bankruptcy, since both business debts and the owner's personal debts will be discharged. In bankruptcy, the owner … show that higher bankruptcy exemption levels benefit potential entrepreneurs who are risk averse by providing partial …

In this paper, we investigate how personal bankruptcy law affects small firms' access to credit. When a firm is … to its owner. If the firm fails, the owner has an incentive to file for personal bankruptcy, since the firm's debts will … exemption level, the greater is the incentive to file for bankruptcy. We show that supply of credit falls and demand for credit …

residential mortgages to the current market value of the property for homeowners in Chapter 13 bankruptcy. Our identification is … lending. According to these findings, re-introducing strip-down of mortgages in bankruptcy as a foreclosure-prevention program …

Bankruptcy is the legal process by which the debts of firms, individuals, and occasionally governments in financial … distress are resolved. Bankruptcy law always includes three components. First, it provides a collective framework for … how the assets and earnings used to repay are divided among creditors. Third, bankruptcy law specifies punishments …