Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60960
Authors: 
Morgan, Donald P.
Iverson, Benjamin
Botsch, Matthew
Year of Publication: 
2009
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 358
Abstract: 
We argue that the 2005 bankruptcy abuse reform (BAR) contributed to the surge in subprime foreclosures that followed its passage. Before BAR, over-indebted mortgagors could free up income to pay the mortgage by filing bankruptcy and having their unsecured debts discharged. BAR blocks that maneuver for better-off filers by way of a means test. We identify the effects of BAR using state home equity bankruptcy exemptions; filers in low-exemption states were not very protected before BAR, so they would be less affected by the reform. Difference-in-difference regressions confirm four predictions implied by that identification strategy. Our findings add to research trying to explain the surge in subprime foreclosures and to a broader literature on household bankruptcy demand and credit supply.
Subjects: 
Bankruptcy
subprime foreclosures
subprime mortgages
unsecured debt
credit card debt
home equity exemptions
cram-down
JEL: 
G21
G33
K35
Document Type: 
Working Paper

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