Macroeconomic Effects of Bankruptcy & Foreclosure Policies
June 13, 2015
PIER Working Paper No. 11-015
I develop an equilibrium model of housing and default to jointly analyze the effects of bankruptcy and foreclosure policies. Heterogeneous households have access to mortgages and unsecured credit and can default separately on both types of debt. I show that the interaction between foreclosure and bankruptcy decisions is crucial for explaining the observed cross-state correlation between default policies and default rates. I use the model to argue that a major recent reform to bankruptcy reduced bankruptcy rates but increased foreclosure rates, and that the Home Affordable Refinance Program reduced foreclosures during the Great Recession.
Number of Pages in PDF File: 89
Keywords: Bankruptcy, Foreclosure, Housing, Default Risk, Household Debt
JEL Classification: E21, G11, K35, R21
Date posted: June 3, 2011 ; Last revised: June 19, 2015
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