Category: Law Reviews & Studies

Law Review: Levitin, Lin, & Wachter- Mortgage Risk Premia During the Housing Bubble

Abstract:

How did mortgage risk pricing for securitized loans change during the lead-up to the 2008 financial crisis? Using a database from a major American bank that serves as trustee for private-label securitized loans, this paper shows that the decline in underwriting standards was accompanied by a decline in credit spreads on mortgages, after adjusting for loan/borrower characteristics. Observable information, including FICO and LTV, became less influential on mortgage risk pricing over time during the housing bubble. As the volume of mortgages expanded and lending terms eased during the bubble, the increase in risk failed to be reflected in higher risk premiums.… Read More

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Law Review: Cain- The Bankruptcy of Refusing to Hire Persons Who Have Filed Bankruptcy

Abstract:

In 1978, Congress made it illegal for government employers to deny employment to, terminate the employment of, or discriminate with respect to employment against a person who has filed bankruptcy. In 1984, Congress extended this prohibition to private employers by making it illegal for such employers to terminate the employment of, or discriminate with respect to employment against a person who has filed bankruptcy. Under the law as it currently exists, private employers can refuse to hire a person who has filed bankruptcy solely because that person has filed for bankruptcy. Meanwhile, employers have substantially increased their use of credit history checks as a pre-employment screening device.… Read More

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Law Review: Darolia, Rajeev & Ritter, Dubravka – Strategic Default Among Private Student Loan Debtors: Evidence from Bankruptcy Reform

Abstract:

Bankruptcy reform in 2005 restricted debtors’ ability to discharge private student loan debt. The reform was motivated by the perceived incentive of some borrowers to file bankruptcy under Chapter 7 even if they had, or expected to have, sufficient income to service their debt. Using a national sample of credit bureau files, we examine whether private student loan borrowers distinctly adjusted their Chapter 7 bankruptcy filing behavior in response to the reform. We do not find evidence to indicate that the moral hazard associated with dischargeability appreciably affected the behavior of private student loan debtors prior to the policy.

Commentary:

As the authors conclude that, absent any evidence of moral hazard by allowing borrowers to discharge private student loans, “policymakers are faced with the challenge of weighing the burden placed by restrictions to bankruptcy protection on struggling nonopportunistic debtors against the benefits of expanded credit availability.”

While certainly a valuable corrective to the prevailing belief that borrowers are the parties that game the system, this study is only partially accurate or complete.… Read More

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Law Review: Pardo, Rafael I.- Bankrupt Slaves

Abstract:

Responsible societies reckon with the pernicious and ugly chapters in their histories. Wherever we look around, there exist ever-present reminders of how we failed as a society in permitting the enslavement of millions of black men, women, and children in the first century of this nation’s history. No corner of society remains unstained. As such, it is incumbent on institutions to confront their involvement in this horrific past so as to fully comprehend the kaleidoscopic nature of institutional complicity in legitimating and entrenching slavery. Only by doing so can we properly continue the march of progress, finding ways to improve society, not letting the errors of our way define us, yet at the same time never forgetting them.… Read More

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Law Review: Cohen, Lawless and Shin- Opposite of Correct: Inverted Insider Perceptions of Race and Bankruptcy

Abstract:

Previous data collected during the 2007 meltdown of the subprime mortgage market showed that African Americans were approximately twice as likely to file chapter 13 bankruptcy than persons of other races, a significant policy issue given the generally less generous rules in chapter 13. We first update and replicate these findings with new data collected during 2013 2014 as the housing market recovered. Results of the original study were not specific to the subprime crisis as the new data showed the same 2:1 racial disparity as the older data, suggesting that this disparity may be a relatively enduring part of the U.S.… Read More

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Law Review: Hermann, Jonathan S.- Restoring Bankruptcy’s Fresh Start

Abstract:

The discharge injunction, which allows former debtors to be free from any efforts to collect former debt, is a primary feature of bankruptcy law in the United States. When creditors have systemically violated debtors’ discharge injunctions, some debtors have attempted to challenge those creditors through a class action lawsuit in bankruptcy court. However, the pervasiveness of class-waiving arbitration clauses likely prevents those debtors from disputing discharge injunction violations outside of binding, individual arbitration. This Note first discusses areas of disagreement regarding how former debtors may enforce their discharge injunctions. Then, it examines the types of disputes that allow debtors to collectivize in bankruptcy court.… Read More

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Law Review: Sousa, Michael D.- The Persistence of Bankruptcy StigmaLaw Review: Sousa, Michael D.- The Persistence of Bankruptcy Stigma

Abstract: 
The debtor-creditor relationship has always been intertwined with notions of morality. Failing to pay one’s financial obligations has traditionally been met with social opprobrium, internal shame, and external stigma. This dynamic did not change with the advent of American bankruptcy law. Indeed, for much of the twentieth-century, scholars have studied and debated whether the stigma associated with filing for bankruptcy has declined over the years, particularly in the 1980s and 1990s when the number of consumer bankruptcy filings increased dramatically. Existing studies suggest that the stigma regarding personal bankruptcy has declined in the latter portion of the twentieth-century.
Using a data set previously untapped by bankruptcy and social science scholars, this study explores the trend of bankruptcy stigma for approximately four decades, from the advent of the Bankruptcy Code in 1978 to the present day.… Read More

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Law Review: Taylor, Aaron & Sheffner, Daniel – Oh, What a Relief It (Sometimes) Is: An Analysis of Chapter 7 Bankruptcy Petitions to Discharge Student Loans

Law Review: Taylor, Aaron & Sheffner, Daniel – Oh, What a Relief It (Sometimes) Is: An Analysis of Chapter 7 Bankruptcy Petitions to Discharge Student Loans

Abstract:

Conventional wisdom dictates that it is all-but-impossible to discharge student loans in bankruptcy. This contention, however, misstates the fact that bankruptcy discharge of student loans is possible—and it happens. This Article presents a statistical analysis of what happened when Chapter 7 bankruptcy petitioners in the First and Third federal judicial circuits filed 523(a)(8) adversary proceedings—or proceedings to discharge their student loan debt due to an “undue hardship.” In our analysis, we found undue hardship discharge rates of 54% in the First Circuit and 24% in the Third Circuit.… Read More

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Law Review: Eraslan, Hulya et al.- The Anatomy of U.S. Personal Bankruptcy Under Chapter 13

Abstract:

By compiling a novel data set from bankruptcy court dockets recorded in Delaware between 2001 and 2002, the authors build and estimate a structural model of Chapter 13 bankruptcy. This allows them to quantify how key debtor characteristics, including whether they are experiencing bankruptcy for the first time, their past-due secured debt at the time of filing, and income in excess of that required for basic maintenance, affect the distribution of creditor recovery rates. The analysis further reveals that changes in debtors’ conditions during bankruptcy play a nontrivial role in governing Chapter 13 outcomes, including their ability to obtain a financial fresh start.… Read More

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Mann, Ronald: Bankruptcy and the U.S. Supreme Court (Cambridge University Press 2017)Mann, Ronald: Bankruptcy and the U.S. Supreme Court (Cambridge University Press 2017)

Summary:

Through the lense of cases,  Prof.  Mann examines how the Supreme Court has interpreted Bankruptcy Code in recent decades, positing that while bankruptcy cases are not among the “big questions” that attract the attention of law clerks and the media, they are not quite the “dogs” of the  Supreme Court docket that tax cases might be.  P.  2.  Using the briefs, news archives and the available papers of the Justices themselves, Prof.  Mann concludes that the Supreme Court decisions are “replete with back-and-forth negotiations about the precise wording of opinions, changes of position after the initial decision and substantial changes in doctrinal approach over time.”

From this Prof. … Read More

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