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Bankruptcy and the Market for Mortgage and Home Improvement Loans


Emily Y. Lin


Government of the United States of America - Department of the Treasury

Michelle J. White


University of California, San Diego (UCSD) - Department of Economics; National Bureau of Economic Research (NBER)

November 2000

Michigan Law and Economics Research Paper No. 00-013

Abstract:     
This paper investigates the relationship between bankruptcy exemptions and the availability of credit for mortgage and home improvement loans. We develop a combined model of debtors' decisions to file for bankruptcy and to default on their mortgages and show that the theory predicts positive relationships between both the homestead and personal property exemption levels and the probability of borrowers being denied mortgage (secured) and home improvement loans. We test these predictions empirically and find strong and statistically significant support when evidence from cross-state variation in bankruptcy exemption levels is used. Applicants for mortgages are 2 percentage points more likely to be turned down for mortgages and 5 percentage points more likely to be turned down for home improvement loans if they live in states with unlimited rather than low homestead exemptions. These relationships also hold when we introduce state fixed effects into the model.

Number of Pages in PDF File: 25

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Date posted: December 11, 2000  

Suggested Citation

Lin, Emily Y. and White, Michelle J., Bankruptcy and the Market for Mortgage and Home Improvement Loans (November 2000). Michigan Law and Economics Research Paper No. 00-013. Available at SSRN: http://ssrn.com/abstract=252699 or http://dx.doi.org/10.2139/ssrn.252699

Contact Information

Emily Y. Lin (Contact Author)
Government of the United States of America - Department of the Treasury ( email )
1500 Pennsylvania Avenue, NW
Washington, DC 20220
United States
Michelle J. White
University of California, San Diego (UCSD) - Department of Economics ( email )
9500 Gilman Drive
La Jolla, CA 92093-0508
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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