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 …

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 …