Who invests in home equity to exempt wealth from bankruptcy?
AbstractHomestead exemptions to personal bankruptcy allow households to retain their home equity up to a limit determined at the state level. Households that may experience bankruptcy thus have an incentive to bias their portfolios towards home equity. Using US household data from the Survey of Income and Program Participation for the period 1996-2006, we find that especially households with low net worth maintain a larger share of their wealth as home equity if a larger homestead exemption applies. This home equity bias is also more pronounced if the household head is in poor health, increasing the chance of bankruptcy on account of unpaid medical bills. The bias is further stronger for households with mortgage finance, shorter house tenures, and younger household heads, which taken together reflect households that face more financial uncertainty. JEL Classification: G11, K35, R21
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Date of creation: May 2011
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Other versions of this item:
- Corradin, S. & Gropp, R. & Huizinga, H.P. & Laeven, L., 2010. "Who Invests in Home Equity to Exempt Wealth from Bankruptcy?," Discussion Paper 2010-118, Tilburg University, Center for Economic Research.
- Corradin, Stefano & Gropp, Reint & Huizinga, Harry & Laeven, Luc, 2010. "Who Invests in Home Equity to Exempt Wealth from Bankruptcy?," CEPR Discussion Papers 8097, C.E.P.R. Discussion Papers.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
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