Working Paper: NBER ID: w28900
Authors: Jacelly C. Cespedes; Carlos R. Parra; Clemens Sialm
Abstract: Mortgage cramdown enabled bankruptcy judges to discharge the underwater portion of a mortgage during Chapter 13 bankruptcy before the Supreme Court disallowed this practice in 1993. We exploit the random assignment of cases to judges to quantify the ex-post effects of Chapter 13 bankruptcy over the period from 1989 to 1993. We find that a successful Chapter 13 filing in a cramdown court substantially decreases the five-year foreclosure rate, the propensity to move, and the crime rate. Our results suggest that principal write-down considerably reduces homeowner’s distress.
Keywords: No keywords provided
JEL Codes: G21; G28; G41; G51; H31; H73; K25; K35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| successful chapter 13 filing in a cramdown court (K35) | decrease in the five-year foreclosure rate (G21) |
| discharge in cramdown courts (G33) | reduction in the propensity to move (J62) |
| discharge in cramdown courts (G33) | reduction in the crime rate (K42) |
| households whose debt is discharged in cramdown courts (K35) | reduction in subsequent criminal filings (K40) |
| discharge benefits (J32) | more pronounced for female filers (J16) |
| cramdown provision (G33) | beneficial effects on foreclosure rates (G21) |
| mortgage cramdown (G21) | reduction in foreclosures (G21) |