Subprime Foreclosures and the 2005 Bankruptcy Reform, Donald P. Morgan, Benjamin Iverson, and Matthew Botsch
after the bankruptcy abuse reform (BAR) took effect in October 2005. This article presents arguments and evidence suggesting that it is not. Before BAR, any household could file Chapter 7 bankruptcy and have its credit card and other unsecured debts discharged. By sidestepping their unsecured debts, households retained more income to pay their secured debts, such as mortgages. BAR blocks that maneuver by presenting a variety of obstacles, including a means test that forces better-off households that demand bankruptcy protection to file Chapter 13, where they must continue paying unsecured lenders.2 When the means test binds, cash-flow-constrained mortgagors who might have saved their home by filing Chapter 7 are more likely to face foreclosure.”
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