TY  - JOUR
AU  - White,Michelle J.
AU  - Zhu,Ning
TI  - Saving Your Home in Chapter 13 Bankruptcy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14179
PY  - 2008
Y2  - July 2008
UR  - http://www.nber.org/papers/w14179
L1  - http://www.nber.org/papers/w14179.pdf
N1  - Author contact info:
Michelle J. White
Department of Economics
University of California, San Diego
La Jolla, CA  92093-0508
Tel: 858/534-2783
Fax: 858/534-7040
E-Mail: miwhite@ucsd.edu

Ning Zhu
Graduate School of Management
UC, Davis
One Shields Avenue
Davis, CA 95616-8609
Tel: 530/752-3871
Fax: 530/752-2924
E-Mail: nzhu@saif.sjtu.edu.cn
AB  - This paper examines how filing for bankruptcy under Chapter 13 helps financially distressed debtors save their homes.  We develop a model of debtors’ decisions to default on their mortgages and file for bankruptcy under Chapter 13 and evaluate the model using new data on Chapter 13 bankruptcy filers.  We also examine the effect of allowing bankruptcy judges to reduce debtors’ mortgage payments, i.e., introducing “cram-down” of mortgages in Chapter 13.  <br> <br>We find that 96% of Chapter 13 filers are homeowners and 79% of filers repay mortgage debt in their repayment plans; while just 9% of filers repay only unsecured debt in their plans.  These results suggest that filers use Chapter 13 almost exclusively as a “save-your-home” procedure.   But under current law, only about 1% Chapter 13 filers save their homes when they would otherwise have defaulted.  If cram-down were introduced, we predict that this fraction would increase to 10%.    The cost to lenders of introducing cram-down is estimated to be $264,000 per home saved and $30 billion in total.
ER  -