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Mortgage credit and bankruptcy chapter choice: a case of US counties

Chintal Ajitbhai Desai (Department of Finance, Insurance and Real Estate, Virginia Commonwealth University, Richmond, Virginia, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 11 July 2016




A financially distressed homeowner considers bankruptcy filing, either Chapter 7 or Chapter 13, to delay foreclosure. On one hand, Chapter 13 filing takes longer processing time, spreads mortgage arrearages over the debt repayment period, and increases the possibility of loan modification. On the other hand, Chapter 7 filing discharges unsecured debt, which provides additional disposable income for mortgage payments. The paper aims to discuss these issues.


The author uses fixed-effects (within variation), random-effects, and generalized estimation equation models with time dummies on the panel data of US counties.


The results show that mortgage delinquency increases Chapter 7 filings, while it has positive but statistically insignificant effect on Chapter 13 filings. In addition, a county’s mortgage debt to income and proportion of mortgage borrowers increase its Chapter 7 filings.


The contribution of the paper is to assess the effect of mortgage credit on the bankruptcy chapter choice using the county-level data.



JEL Classification — D12, D14, G21, K35

The author thanks two anonymous reviewers for their valuable comments. The author also thanks the Editor, Don Johnson, for his encouragement on the chosen research topic. The author also thanks Neil Bhutta (discussant), David Downs, Gregory Elliehausen, Manish Gupta, and participants of American Real Estate and Urban Economic Association ' s National Meeting 2014 for their comments. The author completed some portion of data collection at The George Washington University. The author also acknowledges the contribution of his wife, Ditina Desai, for proofreading the manuscript. The author is responsible for errors and omissions.


Desai, C.A. (2016), "Mortgage credit and bankruptcy chapter choice: a case of US counties", Managerial Finance, Vol. 42 No. 7, pp. 680-705.



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