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

Michelle White

No 14549, NBER Working Papers from National Bureau of Economic Research, Inc

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 U.S. 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 possibility of giving bankruptcy judges new power to change the terms of mortgage contracts in bankruptcy.

JEL-codes: E44 G01 K35 R31 (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-cba, nep-law, nep-mac, nep-reg and nep-ure
Note: LE
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Citations: View citations in EconPapers (2)

Published as Michelle J. White, 2009. "Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis," American Law and Economics Review, Oxford University Press, vol. 11(1), pages 1-23.

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