Role of Personal Bankruptcy Exemption Laws on Mortgage Availability

Sumit Agarwal
Souphala Chomsisengphet

The opinions expressed in this article are those of the author and do not necessarily reflect the opinions of the U.S. Department of Housing and Urban Development or the U.S. government at large.

This article investigates the relationship between bankruptcy exemption laws and the availability of credit for first and second mortgages (home equity loans and lines). The authors follow a bank-specific approach as advocated by Stengel and Glennon (1999) to test this relationship, using application data from multiple financial institutions. The data sets are unique and include a number of financial and demographic variables that are lacking in other studies on this topic. The article shows that, after controlling for all financial and economic variables, the availability of credit does not fall for first and second mortgages originated in states with higher bankruptcy exemption levels.