Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis
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 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.
|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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- Michelle J. White & Ning Zhu, 2010.
"Saving Your Home in Chapter 13 Bankruptcy,"
The Journal of Legal Studies,
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"Do Liquidity Constraints And Interest Rates Matter For Consumer Behavior? Evidence From Credit Card Data,"
The Quarterly Journal of Economics,
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- David B. Gross & Nicholas S. Souleles, 2001. "Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data," NBER Working Papers 8314, National Bureau of Economic Research, Inc.
- Scott Fay & Erik Hurst & Michelle J. White, 2002. "The Household Bankruptcy Decision," American Economic Review, American Economic Association, vol. 92(3), pages 706-718, June.
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"Personal Bankruptcy and Credit Supply and Demand,"
NBER Working Papers
5653, National Bureau of Economic Research, Inc.
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"Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures,"
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- Fan, Wei & White, Michelle J, 2003. "Personal Bankruptcy and the Level of Entrepreneurial Activity," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 543-67, October.
- Donald P. Morgan & Benjamin Iverson & Matthew Botsch, 2008. "Seismic effects of the bankruptcy reform," Staff Reports 358, Federal Reserve Bank of New York.
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