Abstract
Mortgage cramdown enabled bankruptcy judges to discharge the underwater portion of a mortgage in a chapter 13 bankruptcy until the Supreme Court disallowed this practice in 1993. We investigate the impact of mortgage cramdown on household distress exploiting the random assignment of cases to judges. The impact of bankruptcy protection on foreclosures is reduced by more than half after the Supreme Court disallowed cramdown. Our results suggest that large principal reductions considerably decrease homeowners’ distress by reducing debt overhang.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 518-561 |
| Number of pages | 44 |
| Journal | Review of Financial Studies |
| Volume | 39 |
| Issue number | 2 |
| DOIs | |
| State | Published - Feb 1 2026 |
Bibliographical note
Publisher Copyright:© The Author(s) 2025. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.
Keywords
- D14
- G21
- G51
- K35
Fingerprint
Dive into the research topics of 'The Effect of Principal Reduction on Household Distress: Evidence from Mortgage Cramdown'. Together they form a unique fingerprint.Cite this
- APA
- Standard
- Harvard
- Vancouver
- Author
- BIBTEX
- RIS