Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis
AbstractThis 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.S. 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 possibility of giving bankruptcy judges new power to change the terms of mortgage contracts in bankruptcy.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14549.
Date of creation: Dec 2008
Date of revision:
Publication status: published as Michelle J. White, 2009. "Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis," American Law and Economics Review, Oxford University Press, vol. 11(1), pages 1-23.
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Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G01 - Financial Economics - - General - - - Financial Crises
- K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
- R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-14 (All new papers)
- NEP-CBA-2008-12-14 (Central Banking)
- NEP-LAW-2008-12-14 (Law & Economics)
- NEP-MAC-2008-12-14 (Macroeconomics)
- NEP-REG-2008-12-14 (Regulation)
- NEP-URE-2008-12-14 (Urban & Real Estate Economics)
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