Abstract
Purpose– 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.Design/methodology/approach– The author uses fixed-effects (within variation), random-effects, and generalized estimation equation models with time dummies on the panel data of US counties.Findings– 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.Originality/value– The contribution of the paper is to assess the effect of mortgage credit on the bankruptcy chapter choice using the county-level data.
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