Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis

Posted: 25 Aug 2009

See all articles by Michelle J. White

Michelle J. White

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

Multiple version iconThere are 2 versions of this paper

Date Written: Spring 2009

Abstract

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 United States 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 argument for giving bankruptcy judges new power to change the terms of residential mortgage contracts in bankruptcy.

JEL Classification: E51, K35, R21

Suggested Citation

White, Michelle J., Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis (Spring 2009). American Law and Economics Review, Vol. 11, Issue 1, pp. 1-23, 2009. Available at SSRN: https://ssrn.com/abstract=1458793 or http://dx.doi.org/ahp002

Michelle J. White (Contact Author)

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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