Saving Homes? Bankruptcies and Loan Modifications in the Foreclosure Crisis

40 Pages Posted: 25 Feb 2014

See all articles by Alan M. White

Alan M. White

CUNY School of Law

Carolina Reid

University of California, Berkeley

Date Written: February 24, 2014


Do homeowner bankruptcy filings work to delay or prevent home foreclosures, and how do they compare to voluntary loan modifications specifically targeted to mortgage relief? The 2007–2012 financial crisis provides a unique opportunity to assess whether bankruptcy can help homeowners avoid the negative consequences of over-indebtedness and mortgage default. This empirical study analyzes a large, loan-level mortgage dataset to determine which variables are associated with delinquency and bankruptcy filing, and in turn, whether filing bankruptcy or receiving a loan modification measurably influences subsequent loan outcomes (e.g., foreclosure sale, prepayment, or default cure). Overall, we find that bankruptcy filings delay foreclosures but are not generally effective in curing payment defaults, especially when compared to modifications negotiated outside of bankruptcy, which are highly effective. We also find, consistent with prior research, that variations in state bankruptcy and foreclosure law greatly influence debtor outcomes from one state to another. Bankruptcy filing is more effective in states with nonjudicial foreclosure and limited homeowner protections.

Keywords: Mortgage foreclosure, bankruptcy, loan modification

JEL Classification: G21, G33

Suggested Citation

White, Alan M. and Reid, Carolina Katz, Saving Homes? Bankruptcies and Loan Modifications in the Foreclosure Crisis (February 24, 2014). Florida Law Review, Vol. 65, No. 6, 2013. Available at SSRN:

Alan M. White (Contact Author)

CUNY School of Law ( email )

2 Court Square
Long Island City, NY 11101
United States

Carolina Katz Reid

University of California, Berkeley ( email )

312 Wurster Hall #1850
Berkeley, CA 94720-1850
United States
510-604-0790 (Phone)

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