The division of responsibility between state and federal authorities in bankruptcy is complex. The U.S. Constitution cedes the power to pass bankruptcy laws to the federal government. For political reasons, however, since 1867 the federal bankruptcy law has deferred to one degree or another to the states with respect to the designation of property exempt from administration in a bankruptcy case. The constitutionality of this practice under the uniformity requirement in the Bankruptcy Clause of the Constitution has been settled since 1902. More recently, however, considerable disagreement has arisen in the case law over whether this deference extends to exemptions enacted by a state that apply solely in bankruptcy. In this article, the author examines the constitutionality of such exemptions under both the Bankruptcy and the Supremacy Clauses. He concludes that serious questions exist on both counts given the potential of such exemptions, respectively, to undermine the uniform application of core bankruptcy policy and frustrate the full attainment of the goals of the bankruptcy system. At the same time, however, the author notes that the growth in the prevalence of such exemptions, coupled with other contemporary social and economic developments, suggest that the political considerations that for so long accounted for the use of state exemptions in bankruptcy cases may have abated to the point that the issue can be most efficaciously resolved by federalizing bankruptcy exemptions — an approach near-unanimously urged by congressional commissions and commentators for over forty years as far superior to the present system.
{"title":"Constitutional Limitations on State-Enacted Bankruptcy Exemption Legislation and the Long Overdue Case for Uniformity","authors":"Lawrence Ponoroff","doi":"10.2139/ssrn.2421632","DOIUrl":"https://doi.org/10.2139/ssrn.2421632","url":null,"abstract":"The division of responsibility between state and federal authorities in bankruptcy is complex. The U.S. Constitution cedes the power to pass bankruptcy laws to the federal government. For political reasons, however, since 1867 the federal bankruptcy law has deferred to one degree or another to the states with respect to the designation of property exempt from administration in a bankruptcy case. The constitutionality of this practice under the uniformity requirement in the Bankruptcy Clause of the Constitution has been settled since 1902. More recently, however, considerable disagreement has arisen in the case law over whether this deference extends to exemptions enacted by a state that apply solely in bankruptcy. In this article, the author examines the constitutionality of such exemptions under both the Bankruptcy and the Supremacy Clauses. He concludes that serious questions exist on both counts given the potential of such exemptions, respectively, to undermine the uniform application of core bankruptcy policy and frustrate the full attainment of the goals of the bankruptcy system. At the same time, however, the author notes that the growth in the prevalence of such exemptions, coupled with other contemporary social and economic developments, suggest that the political considerations that for so long accounted for the use of state exemptions in bankruptcy cases may have abated to the point that the issue can be most efficaciously resolved by federalizing bankruptcy exemptions — an approach near-unanimously urged by congressional commissions and commentators for over forty years as far superior to the present system.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"2 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2015-08-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88901977","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The recently enacted Small Business, Enterprise and Employment Act of 2015 makes sweeping changes to the insolvency framework of the United Kingdom, supplanting much of the 1986 Insolvency Act, which had already undergone substantial amendment since its original passage. These changes illustrate a broader trend in U.K. insolvency practice – a movement away from formal processes in favour of streamlined, more flexible solutions for insolvent companies. We are faced with two, distinct and competing policy interests. On one hand, we want to increase certainty, minimize cost, and reach a resolution quickly and discreetly. However, on the other hand, we want a process that affords stakeholders the ability to reasonably voice their concerns and addresses those concerns in a manner that fairly and equitably resolves, or at least mitigates, disputes. However, this paper argues that, by utilising readily available technologies, we can create a digital forum for insolvency practice where all stakeholders can readily voice their opinions and reasonably resolve their disputes, while not only preserving, but, in fact, improving the efficiency, cost-effectiveness and certainty of the process. We may no longer need to sacrifice due process for efficiency.
{"title":"Finding a Forum for Insolvency: Using Digital Forums to Improve Due Process in Insolvency Proceedings While Preserving Speed, Certainty, Discretion, and Cost Considerations","authors":"Charles E. Rainey","doi":"10.2139/ssrn.2657473","DOIUrl":"https://doi.org/10.2139/ssrn.2657473","url":null,"abstract":"The recently enacted Small Business, Enterprise and Employment Act of 2015 makes sweeping changes to the insolvency framework of the United Kingdom, supplanting much of the 1986 Insolvency Act, which had already undergone substantial amendment since its original passage. These changes illustrate a broader trend in U.K. insolvency practice – a movement away from formal processes in favour of streamlined, more flexible solutions for insolvent companies. We are faced with two, distinct and competing policy interests. On one hand, we want to increase certainty, minimize cost, and reach a resolution quickly and discreetly. However, on the other hand, we want a process that affords stakeholders the ability to reasonably voice their concerns and addresses those concerns in a manner that fairly and equitably resolves, or at least mitigates, disputes. However, this paper argues that, by utilising readily available technologies, we can create a digital forum for insolvency practice where all stakeholders can readily voice their opinions and reasonably resolve their disputes, while not only preserving, but, in fact, improving the efficiency, cost-effectiveness and certainty of the process. We may no longer need to sacrifice due process for efficiency.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"10 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2015-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91270086","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In a politically controversial attempt to modernize the French economy, French Minister of the Economy Emmanuel Macron passed a sweeping law earlier this year, reforming many areas of French business law, including bankruptcy law. For the first time under French law shareholder eviction will be available - under certain circumstances and without any breach of the shareholder’s duties - to remove them from decisions affecting the future of a distressed company. This law is a step in the right direction to force shareholders to absorb the company’s losses and allow new shareholders to invest fresh money. Unfortunately, the French government failed to use modern, world-class economic standards to govern a shareholder eviction under the new law. First, by retaining an antiquated trigger of liquidity crisis instead of actual insolvency, the law fails to consider the enterprise value of the company (the "going concern value") as the proper economic basis to recognize that shares have become worthless, an essential element to provide legitimacy for their eviction and avoid the risk of an unconstitutional violation of property rights. Second, by requiring that a judge justify the eviction by finding a "public necessity" to avoid a risk of "serious loss to the economy", the law offers a weak constitutional safeguard for property rights, a loosely defined public interest standard and little guidance for a judge to avoid arbitrary decisions and political interferences. This lack of economic and conceptual basis has unfortunately transformed a genuine attempt to reform French law into an inadequate and potentially unconstitutional new law.
{"title":"A Constitutional Review of the Draft 'Macron' Law Introducing Shareholder Eviction under French Law: The Revolution that Didn't Happen","authors":"Sophie Vermeille, Jérémy Martinez, F. Papon","doi":"10.2139/SSRN.2603523","DOIUrl":"https://doi.org/10.2139/SSRN.2603523","url":null,"abstract":"In a politically controversial attempt to modernize the French economy, French Minister of the Economy Emmanuel Macron passed a sweeping law earlier this year, reforming many areas of French business law, including bankruptcy law. For the first time under French law shareholder eviction will be available - under certain circumstances and without any breach of the shareholder’s duties - to remove them from decisions affecting the future of a distressed company. This law is a step in the right direction to force shareholders to absorb the company’s losses and allow new shareholders to invest fresh money. Unfortunately, the French government failed to use modern, world-class economic standards to govern a shareholder eviction under the new law. First, by retaining an antiquated trigger of liquidity crisis instead of actual insolvency, the law fails to consider the enterprise value of the company (the \"going concern value\") as the proper economic basis to recognize that shares have become worthless, an essential element to provide legitimacy for their eviction and avoid the risk of an unconstitutional violation of property rights. Second, by requiring that a judge justify the eviction by finding a \"public necessity\" to avoid a risk of \"serious loss to the economy\", the law offers a weak constitutional safeguard for property rights, a loosely defined public interest standard and little guidance for a judge to avoid arbitrary decisions and political interferences. This lack of economic and conceptual basis has unfortunately transformed a genuine attempt to reform French law into an inadequate and potentially unconstitutional new law.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2015-03-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73309782","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The operation of compensation, whereby a liquid debt reduces or extinguishes a liquid debt, is well understood, as is retention of a sum due under a contract on the principle of mutuality. Less understood is the doctrine of retention of debts, the so-called “other type of retention” or “equitable” retention discussed in obiter remarks by Lord Rodger in the UK Supreme Court decision in Inveresk plc v Tullis Russell Papermakers Ltd [2010] UKSC 19. This form of “equitable” retention is the subject of a detailed study by Lorna Richardson in this article.
补偿的运作，即流动债务减少或消灭流动债务，是很容易理解的，就像根据互惠原则保留合同项下的到期款项一样。不太了解的是保留债务的原则，即所谓的“其他类型的保留”或“公平的”保留，罗杰勋爵在英国最高法院对Inveresk plc诉Tullis Russell Papermakers Ltd [2010] UKSC 19的判决中发表了激烈的评论。Lorna Richardson在本文中详细研究了这种形式的“公平”留存。
{"title":"Examining 'Equitable' Retention","authors":"L. Richardson","doi":"10.3366/ELR.2016.0320","DOIUrl":"https://doi.org/10.3366/ELR.2016.0320","url":null,"abstract":"The operation of compensation, whereby a liquid debt reduces or extinguishes a liquid debt, is well understood, as is retention of a sum due under a contract on the principle of mutuality. Less understood is the doctrine of retention of debts, the so-called “other type of retention” or “equitable” retention discussed in obiter remarks by Lord Rodger in the UK Supreme Court decision in Inveresk plc v Tullis Russell Papermakers Ltd [2010] UKSC 19. This form of “equitable” retention is the subject of a detailed study by Lorna Richardson in this article.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"23 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2015-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73174587","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the relationship between broker-borrower interaction in the origination process and subsequent mortgage performance. I show that face-to-face interaction between a mortgage broker and borrower before the loan funds is associated with lower levels of ex post default. The relation between face-to-face broker-borrower interaction and mortgage performance holds only for borrowers that have characteristics associated with low levels of financial literacy. Specifically, face-to-face interaction is negatively related to default for minorities, borrowers located in areas with low levels of education, low-income borrowers, and borrowers with low FICO scores. Moreover, the relation between default and broker-borrower interaction is significant only for certain loan products (adjustable rate mortgages, low income documentation loans, cash-out refinances) that have been linked to low levels of financial literacy. My analysis also indicates that broker screening, lender underwriting, and unobservable characteristics of the borrower or broker are unlikely explanations for the relationship between broker-borrower interaction and default. Taken together, my results suggest that face-to-face interaction between the mortgage broker and borrower may reduce problems associated with financial illiteracy.
{"title":"Financial Literacy, Broker-Borrower Interaction, and Mortgage Default","authors":"James N. Conklin","doi":"10.2139/ssrn.2446641","DOIUrl":"https://doi.org/10.2139/ssrn.2446641","url":null,"abstract":"This paper examines the relationship between broker-borrower interaction in the origination process and subsequent mortgage performance. I show that face-to-face interaction between a mortgage broker and borrower before the loan funds is associated with lower levels of ex post default. The relation between face-to-face broker-borrower interaction and mortgage performance holds only for borrowers that have characteristics associated with low levels of financial literacy. Specifically, face-to-face interaction is negatively related to default for minorities, borrowers located in areas with low levels of education, low-income borrowers, and borrowers with low FICO scores. Moreover, the relation between default and broker-borrower interaction is significant only for certain loan products (adjustable rate mortgages, low income documentation loans, cash-out refinances) that have been linked to low levels of financial literacy. My analysis also indicates that broker screening, lender underwriting, and unobservable characteristics of the borrower or broker are unlikely explanations for the relationship between broker-borrower interaction and default. Taken together, my results suggest that face-to-face interaction between the mortgage broker and borrower may reduce problems associated with financial illiteracy.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"29 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2014-10-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75345108","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 established new tests for eligibility to file for bankruptcy under Chapter 7. One test is based on median income of the state in which the filer resides, which may result in unfair, arbitrary and Constitutionally impermissible discrimination against middle-income residents of poorer states.
{"title":"Rich States, Poor States: The Disparate Impact of BAPCPA on High- and Low-Median Income State Residents","authors":"Mercer E. Bullard, Nathan Simpson","doi":"10.2139/ssrn.2470255","DOIUrl":"https://doi.org/10.2139/ssrn.2470255","url":null,"abstract":"The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 established new tests for eligibility to file for bankruptcy under Chapter 7. One test is based on median income of the state in which the filer resides, which may result in unfair, arbitrary and Constitutionally impermissible discrimination against middle-income residents of poorer states.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"54 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2014-07-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85741861","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This working paper emanates from a conference on European civil procedure (Uppsala, September 2013), and is expected to be published in a conference book in 2015.The paper evaluates the experiences with the European order for payment procedure and the European small claims procedure, 5 years after their introduction. It discusses general impressions regarding the application of these procedures in the Member States and extent of their potential. The discussion is illustrated by drawing on the implementation of and practical experiences with these procedures in the Netherlands based on case law and empirical research. It reviews the Commission proposal to amend the Small Claims Regulation and the potential impact on the use and functioning of this procedure.It concludes that though experiences during the past five years have not all been positive, one should realise that any change and innovation in procedural law takes a long time to calibrate. Skepticism in relation to the European procedures, and particularly the ESCP, is understandable. However, it is a fact that the number of cross-border transactions is increasing and so are the disputes resulting from these. Most of the amendments that the Commission has proposed in relation to the ESCP − and that might be followed in the EOP revision − are realistic as to what the bottlenecks are. Nevertheless, one may argue as to how they may and can best be tackled, particularly in times of financial distress.As regards the European debt-collection procedures, there is still a great deal to do to raise awareness. For the European policy maker and legislature, along with the individual Member States, the time has come to invest in the further consolidation, implementation, and evaluation of the instruments. Empirical evidence concerning what works and what does not is of utmost importance, especially where European idealism and economic rhetoric no longer suffice as driving forces. Member States’ judges have to adopt a reactive approach in the application of the European civil procedures to fill in the gaps between European and domestic procedure in daily practice. Further, academics have a role to play and should contribute to shape the new architecture and to connect the dots of European civil procedure.
{"title":"European Procedures on Debt Collection: Nothing or Noting? Experiences and Future Prospects","authors":"X. Kramer","doi":"10.2139/ssrn.2507006","DOIUrl":"https://doi.org/10.2139/ssrn.2507006","url":null,"abstract":"This working paper emanates from a conference on European civil procedure (Uppsala, September 2013), and is expected to be published in a conference book in 2015.The paper evaluates the experiences with the European order for payment procedure and the European small claims procedure, 5 years after their introduction. It discusses general impressions regarding the application of these procedures in the Member States and extent of their potential. The discussion is illustrated by drawing on the implementation of and practical experiences with these procedures in the Netherlands based on case law and empirical research. It reviews the Commission proposal to amend the Small Claims Regulation and the potential impact on the use and functioning of this procedure.It concludes that though experiences during the past five years have not all been positive, one should realise that any change and innovation in procedural law takes a long time to calibrate. Skepticism in relation to the European procedures, and particularly the ESCP, is understandable. However, it is a fact that the number of cross-border transactions is increasing and so are the disputes resulting from these. Most of the amendments that the Commission has proposed in relation to the ESCP − and that might be followed in the EOP revision − are realistic as to what the bottlenecks are. Nevertheless, one may argue as to how they may and can best be tackled, particularly in times of financial distress.As regards the European debt-collection procedures, there is still a great deal to do to raise awareness. For the European policy maker and legislature, along with the individual Member States, the time has come to invest in the further consolidation, implementation, and evaluation of the instruments. Empirical evidence concerning what works and what does not is of utmost importance, especially where European idealism and economic rhetoric no longer suffice as driving forces. Member States’ judges have to adopt a reactive approach in the application of the European civil procedures to fill in the gaps between European and domestic procedure in daily practice. Further, academics have a role to play and should contribute to shape the new architecture and to connect the dots of European civil procedure.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"86 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2014-04-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84165022","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this article, we propose an LGD model that is solely based on legal and internal debt collection actions. Our model is supported by empirical tests in which it performs better than a usual firm specific model. This result is noteworthy when we recall that the model has only binary variables that indicate whether an action was taken. Our model can be applied to update the LGD of distressed firms in a timely manner reflecting the actions taken during the debt collection period. It also can be used to assess the effect of a recovery action and to determine whether to apply an action to certain types of debt.
{"title":"Effects of Debt Collection Practices on Loss Given Default","authors":"Chulwoo Han, Young-Gill Jang","doi":"10.2139/ssrn.2427496","DOIUrl":"https://doi.org/10.2139/ssrn.2427496","url":null,"abstract":"In this article, we propose an LGD model that is solely based on legal and internal debt collection actions. Our model is supported by empirical tests in which it performs better than a usual firm specific model. This result is noteworthy when we recall that the model has only binary variables that indicate whether an action was taken. Our model can be applied to update the LGD of distressed firms in a timely manner reflecting the actions taken during the debt collection period. It also can be used to assess the effect of a recovery action and to determine whether to apply an action to certain types of debt.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"30 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2014-04-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76344211","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In 2011, the World Bank initiated its first-ever examination of the policies and characteristics of effective insolvency systems for individuals (natural persons). This paper describes the two-year process that led to the publication of the World Bank's landmark Report on the Treatment of the Insolvency of Natural Persons. After examining the key content and three major themes of the Report, three of the most recent new personal insolvency regimes are introduced with an eye to identifying the ways in which the themes of the Report are reflected in these new laws. The personal insolvency provisions in Colombian law most directly evidence the influence of the World Bank project. Its major themes are reflected distinctly in the new laws in Italy and Ireland, as well, though in very different ways, lending support to the World Bank's predictions of convergence but continuing diversity of approach around the world in this rapidly developing area of law.
{"title":"Reflections of the World Bank's Report on the Treatment of the Insolvency of Natural Persons in the Newest Consumer Bankruptcy Laws: Colombia, Italy, Ireland","authors":"J. Kilborn","doi":"10.2139/SSRN.2426622","DOIUrl":"https://doi.org/10.2139/SSRN.2426622","url":null,"abstract":"In 2011, the World Bank initiated its first-ever examination of the policies and characteristics of effective insolvency systems for individuals (natural persons). This paper describes the two-year process that led to the publication of the World Bank's landmark Report on the Treatment of the Insolvency of Natural Persons. After examining the key content and three major themes of the Report, three of the most recent new personal insolvency regimes are introduced with an eye to identifying the ways in which the themes of the Report are reflected in these new laws. The personal insolvency provisions in Colombian law most directly evidence the influence of the World Bank project. Its major themes are reflected distinctly in the new laws in Italy and Ireland, as well, though in very different ways, lending support to the World Bank's predictions of convergence but continuing diversity of approach around the world in this rapidly developing area of law.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"134 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2014-04-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77385153","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Reforms made to the U.S. Bankruptcy Code in 2005 instituted a new means testing requirement that restricts the discharge of unsecured debt under Chapter 7 to filers with income below their state's median, thereby forcing filers with income above their state's median into a costly Chapter 13 repayment plan. We construct a quantitative equilibrium model of the mortgage and unsecured credit markets to assess the impact of this reform on the severity of the housing crisis during the Great Recession. We find that while this reform increased the relative attractiveness of mortgage default, its impact on the housing market during the crisis was largely mitigated by general equilibrium effects on mortgage lending standards. Allowing bankruptcy judges to reduce mortgage principal for underwater homeowners through a policy of cramdown would have had only a small impact on the mortgage default rate during the crisis.
{"title":"Bankruptcy Reform and the Housing Crisis","authors":"Matthew N. Luzzetti, Seth Neumuller","doi":"10.2139/ssrn.2001777","DOIUrl":"https://doi.org/10.2139/ssrn.2001777","url":null,"abstract":"Reforms made to the U.S. Bankruptcy Code in 2005 instituted a new means testing requirement that restricts the discharge of unsecured debt under Chapter 7 to filers with income below their state's median, thereby forcing filers with income above their state's median into a costly Chapter 13 repayment plan. We construct a quantitative equilibrium model of the mortgage and unsecured credit markets to assess the impact of this reform on the severity of the housing crisis during the Great Recession. We find that while this reform increased the relative attractiveness of mortgage default, its impact on the housing market during the crisis was largely mitigated by general equilibrium effects on mortgage lending standards. Allowing bankruptcy judges to reduce mortgage principal for underwater homeowners through a policy of cramdown would have had only a small impact on the mortgage default rate during the crisis.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"182 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2014-03-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76127921","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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