Banking

Saving Your Home In Chapter 13 Bankruptcy

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Executive Summary

This paper examines how filing for bankruptcy under Chapter 13 helps financially distressed debtors save their homes. The authors 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. They also examine the effect of allowing bankruptcy judges to reduce debtors' mortgage payments, i.e., introducing "Cram-down" of mortgages in Chapter 13. They 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.

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