Benjamin Charles Iverson
Benjamin Iverson is a PhD student in the Business Economics program at Harvard Business School and the Harvard Economics Department. He received a B.A. in economics from Brigham Young University in 2006, with a double-minor in mathematics and business. Prior to coming to Harvard, Ben worked as an Assistant Economist at the Federal Reserve Bank of New York, where he studied financial intermediaries. His research interests include corporate and consumer finance, with an emphasis on banking and financial distress.
Subprime Foreclosures and the 2005 Bankruptcy Reform
This article presents arguments and evidence suggesting that the bankruptcy abuse reform (BAR) of 2005 may have been one contributor to the destabilizing surge in subprime foreclosures. Before BAR took effect, overly indebted borrowers could file bankruptcy to free up income to pay their mortgage by having their credit card and other unsecured debts discharged. BAR eliminated that option for better-off filers through a means test and other requirements, thus making it harder to save one's home by filing bankruptcy. By way of evidence, the authors show that the impact of BAR was greater in U.S. states where one would expect it to have a larger impact—namely, in states with high bankruptcy exemptions. Filers in low-exemption states were not very protected before BAR, so they were less likely to be affected by the reform. The authors estimate that for a state with an average home equity exemption, the subprime foreclosure rate after BAR rose 11 percent relative to average before the reform; given the number of subprime mortgages in the United States, that figure translates into 29,000 additional subprime foreclosures per quarter nationwide attributable to BAR.
Insolvency and Bankruptcy;
Governing Rules, Regulations, and Reforms;
Borrowing and Debt;