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The homeownership experience of households in bankruptcy

Author

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  • Sarah W. Carroll
  • Wenli Li

Abstract

This paper provides the first in-depth analysis of the homeownership experience of households in bankruptcy. The authors consider households who are homeowners at the time of filing. These households are typically seriously delinquent on their mortgages at the time of filing. The authors measure how often they end up losing their houses in foreclosure, the time between bankruptcy filing and foreclosure sale, and the foreclosure sale price. In particular, they follow homeowners who filed for chapter 13 bankruptcy between 2001 and 2002 in New Castle County, Delaware, through October 2007. They present three main findings. First, close to 30 percent of the filers lost their houses in foreclosure despite filing for bankruptcy. The rate rose to over 40 percent for those who were 12 months or more behind on their mortgage payment, about the same fraction as among those who entered into foreclosure directly. Second, filing for bankruptcy allowed those who eventually lost their houses to foreclosure to remain in their houses for, on average, an additional year. Third, although the average final sale price exceeded borrowers’ own estimates at the time of filing, the majority of the lenders suffered losses. These findings are pertinent to the recent debate over the bankruptcy code on mortgage modification. Finally, the paper also reports circumstances related to the loan, borrower, and lender that make it more or less likely that a certain result will take place.

Suggested Citation

  • Sarah W. Carroll & Wenli Li, 2008. "The homeownership experience of households in bankruptcy," Working Papers 08-14, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:08-14
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    File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers//2008/wp08-14.pdf
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    References listed on IDEAS

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    1. Hülya Eraslan & Wenli Li & Pierre-Daniel G. Sarte, 2007. "The anatomy of U.S. personal bankruptcy under Chapter 13," Working Papers 07-31, Federal Reserve Bank of Philadelphia.
    2. Anthony Pennington-Cross, 2010. "The Duration of Foreclosures in the Subprime Mortgage Market: A Competing Risks Model with Mixing," The Journal of Real Estate Finance and Economics, Springer, vol. 40(2), pages 109-129, February.
    3. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    4. Kristopher S. Gerardi & Adam Hale Shapiro & Paul S. Willen, 2007. "Subprime outcomes: risky mortgages, homeownership experiences, and foreclosures," Working Papers 07-15, Federal Reserve Bank of Boston.
    5. Lambrecht, Bart M & Perraudin, William R M & Satchell, Steven, 2003. " Mortgage Default and Possession under Recourse: A Competing Hazards Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(3), pages 425-442, June.
    6. Ambrose, Brent W & Buttimer, Richard J, Jr & Capone, Charles A, 1997. "Pricing Mortgage Default and Foreclosure Delay," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 314-325, August.
    7. Lin, Emily Y. & White, Michelle J., 2001. "Bankruptcy and the Market for Mortgage and Home Improvement Loans," Journal of Urban Economics, Elsevier, vol. 50(1), pages 138-162, July.
    8. Karen M. Pence, 2006. "Foreclosing on Opportunity: State Laws and Mortgage Credit," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 177-182, February.
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    11. Chomsisengphet, Souphala & Elul, Ronel, 2006. "Bankruptcy exemptions, credit history, and the mortgage market," Journal of Urban Economics, Elsevier, vol. 59(1), pages 171-188, January.
    12. White, M.J., 1998. "Why Don't More Households File for Bankruptcy?," Papers 98-03, Michigan - Center for Research on Economic & Social Theory.
    13. White, Michelle J, 1998. "Why Don't More Households File for Bankruptcy?," Journal of Law, Economics, and Organization, Oxford University Press, vol. 14(2), pages 205-231, October.
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    Cited by:

    1. Song Han & Geng Li, 2011. "Household Borrowing after Personal Bankruptcy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 491-517, March.
    2. Michelle J. White & Ning Zhu, 2010. "Saving Your Home in Chapter 13 Bankruptcy," The Journal of Legal Studies, University of Chicago Press, vol. 39(1), pages 33-61, January.

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    Keywords

    Home ownership ; Bankruptcy;

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