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Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis

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  • Michelle J. White
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    Abstract

    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 United States in 2005--what did it do and how did it affect credit and mortgage markets? Finally, the paper discusses the mortgage crisis, the high social cost of foreclosures, and the difficulty of avoiding foreclosure by voluntarily renegotiation of mortgage contracts, even when such renegotiations are in the joint interest of debtors and creditors. I also discuss the pros and cons of government programs to refinance mortgages and the argument for giving bankruptcy judges new power to change the terms of residential mortgage contracts in bankruptcy. Copyright 2009, Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal American Law and Economics Review.

    Volume (Year): 11 (2009)
    Issue (Month): 1 ()
    Pages: 1-23

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    Handle: RePEc:oup:amlawe:v:11:y:2009:i:1:p:1-23

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    Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
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    Cited by:
    1. Vikrant Vig & Amit Seru & Tomasz Piskorski, 2009. "Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis," 2009 Meeting Papers 1169, Society for Economic Dynamics.
    2. John Y. Campbell, 2012. "Mortgage Market Design," NBER Working Papers 18339, National Bureau of Economic Research, Inc.
    3. John Y. Campbell & Howell E. Jackson & Brigitte C. Madrian & Peter Tufano, 2011. "Consumer Financial Protection," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 91-114, Winter.
    4. Zhang, Yan, 2013. "Does loan renegotiation differ by securitization status? A transition probability study," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 513-527.
    5. Aysun, Uluc, 2014. "Bankruptcy resolution capacity and economic fluctuations," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 387-399.
    6. Campbell, John Y., 2012. "Mortgage Market Design," Scholarly Articles 9887618, Harvard University Department of Economics.
    7. Uluc Aysun & Raman Khaddaria, 2012. "Bankruptcy resolution capacity and regional economic fluctuations," Working Papers 2012-01, University of Central Florida, Department of Economics.

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